Britain’s biggest investor has dropped AIG from some of its funds over concerns that the US-based insurance group has “insufficient” policies in place over climate change risks.
Legal and General Investment Management said on Tuesday that it would divest several of its holdings from its actively managed portfolios after “unsatisfactory responses” to and “breaches of red lines” around an involvement in coal, carbon disclosures and deforestation.
AIG was dropped from the £58bn portfolio for having no policy on thermal coal nor on the disclosure of carbon emissions associated with its investments, which LGIM said were “red lines” for the banks and insurers it invests in.
“We’ve been engaging with AIG on these very topics since 2017, so it’s been four years of us making the same request of them,” said Yasmine Svan, senior sustainability analyst at LGIM. “We want to give companies a sufficient amount of time to act on our request. But we’re not just here to chat for years.”
Insurers have come under growing pressure to align their activities with decarbonisation efforts and take responsibility for the carbon-intensive businesses they are involved with. This year protesters have targeted insurers of coal projects in campaigns against AIG and Lloyd’s of London, dumping coal outside the headquarters of the specialist insurance market.
AIG provides insurance to the coal industry and other fossil fuel projects. The company declined to comment.
Whether to engage with or divest from companies that are deemed climate change policy laggards has become a vigorous argument. The debate has been spurred by recent successes for activists such as the small hedge fund, Engine No. 1, which won two board seats at ExxonMobil last month in a quest for more transparency on climate risks after getting the support of large investors such as BlackRock and Vanguard, as well as pension funds Calpers and Calstrs.
The Principles for Responsible Investment, the UN-supported network of investors, has said both engagement and divestment are necessary. Investors should be able to track the effects engagement is having, said Sagarika Chatterjee, the director of climate change at PRI, and be clear about when and how to “escalate”.
As well as sanctioning AIG, LGIM said it would also drop from its active funds the Industrial and Commercial Bank of China, the Pennsylvania-based energy company PPL, and China Mengniu Dairy. It has previously divested from companies including China Construction Bank and ExxonMobil.
However, the moves by LGIM are limited. Legal and General remains invested via its much larger passive fund business in AIG and ExxonMobil. These funds invest based on the inclusion of those companies in broader stock exchange indices or trackers. LGIM said the companies would nevertheless face voting sanctions using the shares held in all funds.
Svan said the group would divest from companies that did not have credible climate plans where it was possible, but that doing so was not an option for its passive funds that track indices compiled by other providers.
“The only thing that we can do is build alternatives and offer them to clients, and try and shift assets into these [climate-aligned] products,” while public scrutiny should push companies to change, she said.
In divesting from certain companies on climate grounds, “we’re not making any assessment or judgment on the company’s short term investment outlook”, Svan added. Instead, the move reflected LGIM’s commitment to “aligning our assets with net zero”.
On Tuesday, LGIM said US food retailer Kroger would be reinstated to various funds because it had improved its deforestation policies and disclosures.
Reinstating a company is “sticking our neck out”, so the group looks for evidence of change rather than “just a commitment,” said Svan.
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