‘Now we back up the talk’: LGIM Real Assets’ ESG targets and tactics
As the urgency of addressing the climate crisis grows in the real estate industry, Legal & General Investment Management is trying to drive change on two fronts simultaneously – through the companies in which it invests and through its directly owned property portfolio.
A little over two years into her role as LGIM Real Assets’ first head of ESG, Shuen Chan told EG that on the latter front the focus has moved from rhetoric to being “very much around the doing”.
“We spent time writing a roadmap, setting targets, making the commitments,” she said. “Our roadmap set out the ‘whats’. Now it’s about how we back it up. How do we do it? The industry doesn’t have all the answers. In large part we find ourselves having to be innovators.”
As the urgency of addressing the climate crisis grows in the real estate industry, Legal & General Investment Management is trying to drive change on two fronts simultaneously – through the companies in which it invests and through its directly owned property portfolio.
A little over two years into her role as LGIM Real Assets’ first head of ESG, Shuen Chan told EG that on the latter front the focus has moved from rhetoric to being “very much around the doing”.
“We spent time writing a roadmap, setting targets, making the commitments,” she said. “Our roadmap set out the ‘whats’. Now it’s about how we back it up. How do we do it? The industry doesn’t have all the answers. In large part we find ourselves having to be innovators.”
Technology and data will prove crucial elements of that innovation. By way of example, Chan pointed to LGIM’s work with XDI, a physical climate risk specialist, on flood risk.
LGIM had tended to use backward-looking data around flood risk during the due diligence process when analysing its portfolio. Now, as part of efforts to meet the requirements of the Task Force on Climate-Related Financial Disclosures, it has developed a more forward-looking system, drawing in fresh data sets based on the unique property reference number for each of the 800 or so assets across the portfolio. That has given it “granularity and accuracy” in its insight into the risks faced at every asset over 10, 20 and even 50 years, Chan said.
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LGIM is holding companies in which it invests to greater account too. The company’s latest active ownership report outlined its voting record at companies in which it holds equity stakes. During the past year the company lifted the number of resolutions on which it voted by 30% to more than 180,000.
The report said LGIM took action against more than 100 companies under its Climate Impact Pledge, including in the banking, insurance, real estate and technology and telecoms sectors, holding directors to account for their management of climate risk. It also expanded its voting policy on ESG and pay to support companies linking an ESG metric to executive compensation.
The two sides of the business can learn from each other, Chan said. “I asked [a colleague in the investment stewardship division]: ‘How are you engaging with our investee companies on the publicly listed side?’” she said. “The response was interesting – where they focus is on governance. The companies need to be well-governed, set up to make the right decisions around decarbonisation strategies or net zero or social impact.”
She wants LGIM’s real assets business to set its own example on that front – and it will be back to the “doing”.
“It’s not just about having green certifications – having a BREEAM [rating] is not going to get you to net zero. You have to have the right targets in place,” she said. “We think what we are doing is what ‘good’ should look like.”
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