Tuesday, April 23, 2019
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Britain's largest money manager warns of a climate catastrophe

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PA

The world is facing a climate catastrophe, and companies around the world need to address it urgently – or get the ultimate sanction for a public company – shareholders who refuse to continue to support them.

This is not news from an environmental action group, but from the UK's largest financial manager, Legal & General Investment Management, which manages the £ 1 trillion UK pension fund.

Their climate change was high on the list of corporate governance concerns.

Other red lights included the level of board salaries, the lack of diversity in leadership roles, the role (and cost) of political advocacy, and the poor quality of the financial information provided by the auditors.

Legal & General insists they are not just virtues.

The company voted against the re-election of nearly 4,000 members in 2018 – an increase of 37%. These included votes against over 100 CEOs based solely on gender diversity.

Sacha Sadan, Legal & General's Director of Corporate Governance, said it has become more difficult to improve the company's boards of directors and senior management.

"The year 2018 was a record year for us as we continue to engage with companies in a wide range of issues and our voting power influences change for our clients, and the increased numbers reflect the higher standards we expect from companies."

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PA

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Carillion collapsed last year

The collapse of the construction and services company Carillion last year, which continued to pay high wages, paid dividends to shareholders and received a clean bill from its auditors, until the sudden liquidation led to widespread outrage just months before the sudden liquidation and the Corporate governance lit up in the UK.

A recent report by a committee of parliamentarians was skeptical of the appetite of asset managers and the ability to increase the quality of corporate governance.

The chairman of the Business Select Committee said last month, "We have no confidence in institutional investors to perform their oversight functions, and we can not rely on shareholders to put pressure."

Legal & General admit that they too have made mistakes.

lesson learned

In 2012, the company approved a compensation formula for Chief Executive of Housebuilder Persimmon, where Jeff Fairburn received a £ 100 million salary package. Mr. Sadan told the BBC that he had learned his lesson. "Since then, we insist that maximum payouts are limited."

The VERY best way for investors to put pressure on them is to sell their shares – or not at all to become shareholders of companies that misbehave.

Many fund managers argue that they are trying to "reform from the inside out" while happily accepting dividend payments from companies in some of the most controversial sectors – such as oil and tobacco.

Legal & General insists that they are ready to do so and last year published a list of companies whose shares they wanted to dump. The list of the eight companies included Russian oil company Rosneft, China Construction Bank and Subaru.

Legal & General say that all eight blacklisted people have come in contact with each other to try to free themselves. Proof of this, say L & G, is that their brand really works for shareholder engagement – or replacement.

For many in the UK, this argument is likely to be more convincing if the list of no-go investments involves companies closer to their hometown that would REALLY feel the cold shoulder of Britain's largest financial manager.

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Bowl

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The head of Shell boss Ben van Beurden has more than doubled in the past year

For example, Royal Dutch Shell is the UK's largest dividend payer after miles – offering investors a tempting 5.8% return. According to Legal & General, they managed to shift the CEO's performance goals toward safety and environmental improvements rather than raw profits. They were less successful in coping with the sheer amount he had taken last year – a whopping 17 million pounds.

Asset managers are effectively the "masters of the universe" when it comes to telling companies how to behave when they need to vote for their investors. But they have strong customers to answer for.

More and more trustees of the pension fund are seeking assurances that the pension contributions of their employees will not result in embarrassing or inappropriate investments. The Church of England was unenthusiastic when it found out that its pension plan was being invested in the now-defunct, high-priced lending firm Wonga.

More recently – and more importantly – the decision of the Norwegian State Fund to divest some of its fossil fuel investments (paradoxically, perhaps, the source of all funds).

However, these examples show that the savers and citizens on whose behalf this money is managed are more aware and more willing to object to how this is done.

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