What opportunities lie ahead this year?
Caroline Ramscar: 2021 really was the year of environmental, social and governance (ESG), spearheaded by COP26, headlines on the climate crisis, and discussions around how we can all help play our part. We expect this spotlight to intensify in 2022.
At LGIM we are already seeing our charity clients adopting more sustainable climate benchmarks, looking at their carbon footprints, and considering where they can make changes that will benefit society. Charities have been at the forefront of thinking around ethical and climate considerations for a number of years.
Richard Lubbock: With increased expectations around how charities deploy their investments – along with an increased understanding that there no longer needs to be a choice between doing the right thing and performance – we believe more of our charity clients may look to making shifts into mainstream ESG funds.
CR: Following the themes raised at COP26, we also expect that discussions will split off into other areas, such as biodiversity loss and deforestation. Charities are already starting to ask about what these issues could mean for their portfolios, and our engagements with companies in these areas.
RL: Charities themselves have a clear societal purpose, so we work closely with our clients not just on the “E” considerations covering the environment, but just as importantly on social and governance issues. LGIM has been focusing on these issues for a number of years; healthcare is a core long-term theme for our stewardship team, and we are seeing increased interest in this area, particularly where charities have started to think about their investments following the Covid-19 pandemic.
CR: Another important area of focus is diversity. We know there has been much work and progress around gender diversity in recent years, but there is much more to be done to improve wider diversity and representation. We have been looking at diversity for a number of years, something that is reflected in our voting and engagement policies, and we are now starting to vote from an ethnic diversity perspective and will vote against boards where ethnic diversity representation is lacking.
We fully encourage charities to question their asset managers more rigorously around these new areas of focus.
How can charities achieve sustainability objectives?
CR: The best way for any asset manager to help clients meet their objectives, is to provide robust investment solutions – the investment case has to stack up. We also work in partnership with clients to help meet their obligations or objectives. For example, a client may have their own decarbonisation goals, or specific mandate requirements. We aim to provide the capability and mainstream solutions that are aligned with the charity’s risk-return profile and provide the asset-class exposures that they require.
LGIM’s climate solutions, which are available across our index range of products, are a good example of this capability. Embedded within the range are decarbonisation targets for alignment with the objectives of the Paris Agreement. For those clients that want to reflect broader ESG considerations, we believe our ESG-tilted index strategies may be an option, allowing clients to achieve market-cap exposure, while aiming to meet sustainability objectives such as reduced carbon emissions intensity versus the benchmark or an improved diversity profile.
We have also partnered with fintech company Tumelo to explore ways of tackling specific themes that beneficiaries care about. For example, in 2021 pay and climate were highlighted as key issues through our insights from the Tumelo platform. We can help people to better understand how their investments align with these principles.
What new trends are you seeing?
CR: We know we don’t have time to wait in tackling climate change, so broader regulations, and particularly the government’s net-zero strategy, have prioritised climate and the “E” considerations. But we know that we must not forget about the “S” and the “G”. Areas such as executive pay, diversity at board and wider company level, and healthcare are increasingly under the spotlight.
As the year progresses, there will also be a greater focus on greenwashing. There will be much tighter rules and regulations to make it clearer to investors what is held within their funds.
There is also going to be a lot more focus on whether funds are doing what they say they are and evidencing back to stakeholders their climate and sustainability credentials. This can provide a real opportunity in 2022 to make a difference.
What we do
We are here to help organisations make the most efficient use of their investments. At a time when the call to the third sector is greater than ever, we partner with our clients to help them achieve their investment goals, whether that is long-term growth above inflation, income, capital preservation or an element of all three. We pride ourselves on offering straightforward, cost-effective solutions to our clients, supported by award-winning client service. LGIM is building on its credentials as a responsible investor to lead the asset management industry in addressing the dramatic challenges posed to by a rapidly changing world. We believe this activity is crucial to mitigate investment risks, capture opportunities and strengthen long-term returns for our clients.
Fast facts*
- Top 10 charity manager
- £4.5bn of charity assets entrusted with us
- True active owners of capital
- Over 66,000 votes cast in 2020 alone
*Figures as at 31 December 2020
Caroline Ramscar is the Head of Sustainability Solutions and Richard Lubbock is Client Director, Charities at Legal & General Investment Management
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