UK's largest investor threatens shareholder revolts over 'climate catastrophe' and gender diversity

£1 trillion pension fund manager Legal & General flexes muscles, calling for more action from corporate boardrooms on greenhouse gases and lack of women in senior roles

A £1 trillion fund manager has ramped up pressure on big companies to take urgent action to avert “climate catastrophe” and boost the number of women on their boards.

The UK’s largest money manager, Legal & General Investment Management (LGIM), voted against the re-election of almost 4,000 company directors last year – a jump of more than a third – and said it was not afraid to withdraw its considerable financial backing from firms that did not reach its standards.

LGIM, which invests millions of people’s pension savings, put climate change at the top of its warning list for corporate boardrooms.

It also sounded the alarm on a lack of gender diversity, sky-high executive pay and the poor quality of financial information that has disguised big problems at companies such as Carillion.

Last year, LGIM voted against 100 board chairs because of a lack of women at senior level, more than double the figure for the previous year and a large jump from just 13 in 2016.

The fund manager has pledged to vote in protest against boards that are less than 25 per cent female. Its policy has so far resulted in votes against companies including Sports Direct, Barclays and Savills estate agents.

On climate change, LGIM highlighted that it pulled millions of pounds last year from eight companies including Russian oil giant Rosneft, Subaru and the China Construction Bank. All of the companies on its “blacklist” contacted LGIM to ask what they had to do to make amends.

Other firms deemed not to have taken enough action on climate change will be named and shamed, LGIM warned.

Sacha Sadan, director of corporate governance at LGIM, said its voting record reflected “the higher standards we expect companies to adhere to, having strengthened our own voting policy in 2018”.

He added: “We are encouraged by much progress being made but there remains more to be done and real success will be dependent on collaboration – companies need to create long-term sustainable business models and deliver value for investors.”

Charlie Kronick, Greenpeace UK's oil finance advisor, said LGIM's stance on climate change was "absolutely a positive step".

He added: "Asset managers need to go beyond voting against the appointment of board members who refuse to act on the climate emergency they face, and vote against pay packages that reward executives for failing to align with a 1.5 degree future, and against the appointment of auditors that don't fully and accurately disclose the risks that the company faces from climate change.

"Investors need to disclose how they vote on resolutions at highly polluting companies, as well the rationale for voting on climate resolutions at any listed company. This isn't 'virtue signalling', it's good business."

Asset managers who control trillions of pounds worth of pension funds and other savings have increasingly been flexing their muscles on environmental, social and governance (ESG) issues, many of which had in the past been the preserve of campaign groups but are now seen as vital to companies’ financial future.

Discrimination based on gender, ethnicity and sexual orientation cost the UK economy £127bn in 2017, a report from the Centre for Economics and Business Research estimated.

Companies also face increased risk to their reputations as scrutiny of diversity increases, notably with mandatory gender pay gap reporting for large UK companies.

Meanwhile, global investors managing more than $32 trillion have signed up to the Climate Action 100+ initiative to ensure the world’s biggest greenhouse gas emitters minimise their environmental impact.

The group said in a joint statement: “As institutional investors, and consistent with our fiduciary duty to our beneficiaries, we will work with the companies in which we invest to ensure that they are minimising and disclosing the risks and maximising the opportunities presented by climate change and climate policy.”