Companies must make addressing the issue of climate change a priority and investors should shun those that do little or nothing to improve their record on this and other corporate governance issues, says Legal & General Investment Management.

LGIM, the fund management division of insurer Legal & General, is the UK’s largest money manager and one of the biggest in Europe, managing around £1 trillion of savings and investments.

The firm reports that it opposed proposals put before shareholders at a total of 386 UK companies in 2018, including one abstention, in its campaign to improve corporate governance. This marked a 53% rise on the 252 companies whose policies it refused to back in 2017.

LGIM voted against the re-election of nearly 4,000 directors last year – an increase of 37% from 2017. The figure included votes against over 100 board chairs on the basis of gender diversity alone in 2018 against 37.the previous year.

Globally, LGIM either opposed or abstained on resolutions at 2,438 companies in 2018, representing 73% of the businesses where the firm cast a vote, against 59% in 2017.

Readiness to act

“2018 was a record year for us as we continued to engage with companies on a broad range of issues, using our voting power to influence change on behalf of our clients,” said Sacha Sadan, LGIM's director of corporate governance. “The increased figures reflect the higher standards we expect companies to adhere to.”

Sadan added that there was a noticeable shift in attitude last year as asset managers began to take environmental, social and governance (ESG) issues, such as combating climate change, more seriously.

Other issues on which there was an increased focus included the level of executive pay, lack of diversity in senior corporate roles, the role and cost of political lobbying and the often-poor quality of financial information provided by auditors.

LGIM says that it is ready to shun companies whose ESG policies are consistently poor or sell shares in companies where it is already an investor and whose record is consistently poor – even when that involves forfeiting generous dividend pay-outs.

In 2018 it had a ‘blacklist’ of eight companies whose shares it dumped, including Russian oil company Rosneft, the China Construction Bank and Japanese car manufacturer Subaru. Each of the eight had been in touch to ask how they could be removed from the blacklist.

Sadan said that overly generous salary and pension packages for company executives were also of growing concern to investors. “As the levels of salaries and bonuses have previously been in the spotlight, we have seen companies seek to use pensions as a way of increasing overall executive compensation,” he added.

LGIM said that it was successful in moving the performance targets on Royal Dutch Shell’s chief executive so that they were based on safety and environmental improvements rather than profit but were unable to moderate his salary, which last year amounted to £17 million.