[lbo-talk] When climate change affects profitability

Marv Gandall marvgand2 at gmail.com
Tue Apr 4 08:21:59 PDT 2017


Britain’s largest asset management company is the latest to join central bankers and other large institutional investors in warning about the effects of stranded oil and gas assets on highly-exposed energy firms, utilities, banks and insurance companies, and the automotive, mining and chemical industries.

Yesterday’s Financial Times (behind a paywall) reports:

Legal & General Investment Management has written to 84 global companies to warn that it will vote against board chairmen at businesses that fail to prepare for a move to a greener economy.

The UK’s largest asset manager this year contacted the largest companies across six sectors it believes are the most exposed to climate change, including miners and banks, and called on them to take action to tackle global warming.

It is the latest sign that asset managers are stepping up their efforts on environmental issues, as concerns mount that governmental attempts to tackle climate change could leave some investors nursing large losses.

Sacha Sadan, director of corporate governance at LGIM, said: “Climate change presents material long-term financial risks in many sectors. The world is changing. We want the companies to adapt to this energy transition. Companies that adapt should be better performers than those that do not.”

LGIM also plans to vote against the chairmen at companies that fall behind their peers on environmental issues. The policy will apply to all of the investment company’s assets, including those that are passively managed. One of its funds, the Future World fund, will sell its holdings in the worst offenders.

“With over $1tn of assets under management, our collective voice can carry a lot of weight,” Mr Sadan said.

He added that voting against board chairmen would “send a message” to companies that climate change was increasingly important to investors. LGIM contacted the largest businesses by market capitalisation that are operating in the oil and gas, utilities, banks and insurance, automotive, mining and chemical industries at the start of the year.

Almost 200 countries globally have agreed to limit global warming to less than 2 degrees centigrade as part of the 2015 Paris Agreement on climate change. Many investors fear that as governments introduce policies to combat climate change, some businesses could suffer big losses.

In 2015, Mark Carney, the governor of the Bank of England, warned that investors faced “potentially huge” losses from climate change action.

Other big investors have also been vocal about demanding companies take action on climate change, by reducing their reliance on fossil fuels and moving towards greener energy. Norway’s oil fund, the world’s largest sovereign wealth fund; Nordea Asset Management, the Nordic fund house; and PKA, the €33bn Danish pension fund, have taken steps to sell their holdings in companies that generate large chunks of their revenues from coal, which is a significant source of carbon emissions.

LGIM’s corporate governance team raised climate change at 47 per cent of the meetings it had with company bosses last year, up from 35 per cent in 2015.

Mr Sadan said: “[LGIM’s] approach of ranking, engaging, voting and divesting sends a powerful message that investors are serious about tackling this issue [of climate change]. “We want companies to embrace the new opportunities. We want them to make money.”

https://www.ft.com/content/05b5dc92-1884-11e7-9c35-0dd2cb31823a?segmentId=88741068-2bbe-ea57-c449-4d3b97c1ae4d



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