Taking action to create a low-carbon economy

Taking action to make our investment activities more sustainable and embrace Environmental, Social and Governance (ESG) factors. This applies to our own direct investments, pension scheme investment funds and social investments.
Climate change is a deepening global crisis, which affects our businesses, our customers and our employees. Global temperature increases will profoundly impact people’s lives and national economies.To minimise the most damaging consequences, global leaders have agreed to limit the temperature increase to 1.5°C to 2°C above pre-industrial levels. It’s an ambitious but achievable target involving a meaningful shift towards low carbon alternatives.
We, as an insurer, investor and a developer have an important role in the transition to a low-carbon economy. We will run our own business in an environmentally sustainable way, create products and services that support a low-carbon future, influence the companies we invest in to be environmentally responsible and ensure that our direct investments support the aim to limit climate change and foster sustainable development. We see these steps as fundamental to the long-term success of our businesses, as well as helping to deliver a low-carbon economy.
How climate change affects us

Our businesses will be directly impacted by the effects of climate change. According to the Intergovernmental Panel on Climate Change (IPCC) even 2°C of warming above pre- industrial levels would mean catastrophic flooding, drought and associated mass-migration, food scarcity and large-scale loss of biodiversity and overall worsening living conditions. These changes will disrupt supply chains and damage infrastructure, impacting economies, markets, companies and people profoundly.

We recognise two main types of risks to our business from climate change:

  1. Physical risks from the impact of more extreme weather conditions such as the impact on the homes we build and invest in.

  2. Transition risks as our investments are impacted by new regulations, technologies and consumer trends. However, at the same time, we are aware that there are also potentially significant opportunities that may arise from the global transition to a low-carbon economy.

We understand our role in this transition and have undertaken a strategic review of our carbon risks and opportunities. We have regularly managed and reported on our Scope 1 and 2 emissions and our business travel Scope 3 emissions. Full details of these emissions are found in our annual report on page 236 and in the data tables.

In 2018, our total greenhouse gas emissions increased from approximately 45,000 tonnes of CO2 emissions (tCO2e) to around 49,000 tonnes (tCO2e), as a direct result of our growing housing businesses. For example, our newly acquired CALA Homes business emissions corresponded to 6,600 tCO2e. In fact the energy used in our UK occupied offices to run our businesses fell by 17% between 2017 and 2018.

In 2018, the carbon emission intensity of the balance sheet was 370.22 tonnes CO2e/£1m invested. This was down 24% from the previous year. When applied to the £69 billion of equity, bonds and property components of the investment portfolio to which shareholders are directly exposed, this gives a carbon footprint of 26 million tonnes of CO2 emissions.

Reducing our carbon footprint and inspiring others

As well as assessing and understanding the carbon footprint of our investments we continue to encourage public policies, investment practices and corporate behaviour that address the long-term risks associated with the impact of climate change

LGIM is a major global institutional investor and has established a climate engagement programme aimed at some of the world’s largest companies: ‘the Climate Impact Pledge’. This is our promise to engage with the largest companies in key sectors which need to address climate change. The scores and ratings that we allocate to improvements made by target companies mean that our progress and changes can be monitored and communicated on an ongoing basis. We raise the minimum standards set every year.

LGIM has also been developing low-carbon investment products in the Future World range, with the aim of helping accelerate the low-carbon transition.

In 2018, we excluded eight companies from the Fund due to their failing to meet minimum standards. A number did not respond to our requests for any engagement; of those that did, some have shown superficial signs of improvement, if any at all.

For the past two years, climate change has been one of the top three themes discussed by LGIM’s corporate governance team in meetings with companies.

LGIM engages with many of the largest global companies on their management of climate change issues, both directly and collectively with other investors. We make use of our votes to support our stance. Looking at key shareholder votes in 2018 in the US, an independent report found that LGIM supported more resolutions on climate change reporting than any of the world’s ten largest asset managers*.

We also consistently include the topic of climate change in the annual seminars we host for non-executive directors of companies. To help reach a wider audience, we will publish a guideline for company boards on how climate change should be governed.

Investing in renewable energy

We have deployed more than £1 billion in renewable energy infrastructure and expect to continue deploying into renewable energy and power grid infrastructure. We invest long-term capital into the energy sector to accelerate the progress to a low-cost, low-carbon economy, also reducing the cost of power for consumers. This includes renewable wind and solar power generation, energy-efficient houses and buildings and innovative technologies to control, manage and store energy.

The Hornsea Project One financing will enable the construction of what will become, once operational, the world’s largest offshore windfarm project, powering over one million homes. It will be located 100 km off the north-east coast of Britain, with 174 UK built Siemens turbines. In 2018, we also entered into a joint venture in Dudgeon Offshore Wind Ltd, located off the east coast of England, producing enough electricity to power 410,000 homes.
We are actively engaged in assessing investment 
opportunities to support the electrification of transport and reduction of greenhouse gas (GHG) emissions due to heating in homes and offices. We have invested in ‘Pod Point’, which provides EV charging units and management software to households as well as to companies wanting to provide EV charging capability for their customers, visitors or employees.

We aim to build highly efficient, near-zero carbon, homes, not only to meet government policy targets but also to meet growing consumer demands. To ensure that our Homes businesses are part of this solution we have a target to develop low-carbon, energy efficient homes in our housing businesses.

We construct new homes to meet the latest standards contained within the Building Regulations, in line with government policy on low-carbon homes, such as including solar PV, solar thermal, air-source heating and shower save. This delivers long-term carbon reductions and homes that are cheaper to run.

  • We were ranked 4th globally among the world’s largest insurers and 2nd among the world’s largest asset managers for their approach to climate risk and opportunity, by the ‘Asset Owners Disclosure Project’ (AODP)

  • LGIM’s Corporate Governance team received the 2018 ICSA award for ‘Best Investor Engagement’ for the fourth year in a row

  • Our Carbon disclosure project score increased to a ‘B’

  • LGIM’s Real assets team were awarded GRESB ‘green stars’ for ESG performance

  • Social Value award in Communities.

Task Force on Climate-related Financial Disclosures

As a signatory to the Task Force on Climate-related Financial Disclosures we’re fully committed to disclosing our approach to the risks and opportunities presented by climate change.

Overall responsibility for climate change and environmental performance is held by the Group CEO, Nigel Wilson and responsibility for consideration of group market risk connected to our investments (including the risk of climate change) is held by the Group CFO, Jeff Davies, who is also a Board member. Under their stewardship we have produced two TCFD reports that outline our governance, risks and opportunities as well as stating our carbon footprint.

Firstly, our group report is a consideration of climate change asset risk to the group’s balance sheet. Secondly, the LGIM report focuses on managing climate-related risks for external customers.

We have a formal framework for risk management policies in place, which sets out approaches to managing different types of risks and defines the minimal control standard over the short, medium and long-term. These can be broken down into four key areas where we capture information as a business and use it to influence our strategy and policies:

1. We will decarbonise the assets on our balance sheet, having set long-term targets for our own energy usage. By 2020, we want to ‘reduce carbon emission per policy by 20% based on 2013 baseline’.

2. For our commercial property portfolio we set carbon reduction targets and monitor through our managing agents.

3. We have a commitment to be a long-term investor in UK renewables and associated key technologies. We have set ourself a target to increase investments into UK energy infrastructure with our own money and that of our customers to support the transition to a low-carbon economy over the next three years.

4. Through LGIM we will use our influence with companies as
a large investor, specifically on environmental issues and the transition to a low-carbon economy. We are currently in discussions to enforce this in the future through changes in the Investment Management Agreements (IMAs) that exclude pure thermal coal and constrains investment in stocks excluded from the Future World investment range.

Download the Group 2018 TCFD report (PDF 609KB)

Download LGIM’s 2018 TCFD report (PDF 1.3MB)

* Source: Climate 50/50 Project -Asset Manager Climate Scorecard 2018, analysis of the voting records of the world’s 13 largest asset managers that report mutual fund votes, focused on resolutions at US energy and utility companies. Charts show voting record of five largest asset managers on climate change, political influence and executive compensation.

Action to reduce plastic usage

We acknowledge that we have a long way to go to meet our own demanding standards in reducing plastic usage in our offices and in the premises and buildings of the companies we own and invest into. In 2018, we made a tentative start by reducing some plastic usage in catering facilities in our offices. During 2019, we will work with suppliers to ensure that we continue to remove plastics.

Action to reduce waste and water usage

We have reduced office water consumption per policy by 46% against our 2013 baseline.

We originally had a target to reduce total waste generation per policy by 25% based on our 2013 baseline. However, our waste per policy has increased from 102 grams to 1,305 grams. This increase is due to our new construction businesses, which represent 95% of group waste.

Full data is available in the Environment Data centre.