Active ownership: the S in ESG

LGIM’s 2022 active ownership report explains the actions we took last year to create sustainable value for our clients. Below is a brief summary of the ‘social’ section of the document.

Diversity: voting to drive progress on ethnic and gender representation

Since 2020, we have been engaging with companies on their commitments to ethnic diversity and have demanded transparent reporting. Our expectation was that, by 2021, some of the largest UK and US companies would set ambitions related to the ethnic composition of their organisation, throughout the workforce, with a particular emphasis at the board level, which we believe generally sets the tone from the top.

The 2022 AGM season was the first voting season during which we placed votes against a company due to a lack of board-level ethnic diversity.

2022 also marked progress in our stance on gender representation at company board level. At the end of the year, we strengthened our voting policies across North America, the UK and Japan.

People and health: AMR and the living wage

Antimicrobial resistance (AMR) is one of our global systemic engagement themes. The World Health Organisation (WHO) describes AMR as one of the top 10 global public health threats facing humanity today.¹ In 2022, we built on the previous year’s engagement programme with water utility companies by adopting a proactive policy-focused approach to progressing this topic.

We wrote to 11 international organisations asking them to focus on four key areas to push for market-wide improvement:

1. Better sectoral coverage, specifically when it comes to water and waterways
2. Integration of AMR risks into sustainable finance
3. The creation of an independent accountability mechanism to guide countries and stakeholders to tackle AMR
4. Effective enforcement, potentially via an ‘AMR tax’

We also continued our work on income inequality and in-work poverty. During 2022, LGIM held 38 company engagements with 23 individual companies to discuss income inequality.

In 2022, we introduced a new expectation in our published guidelines relating to income inequality. The aim is to drive the adoption of a living wage strategy and encourage its public disclosure. Under this policy, LGIM will vote against the annual report of those companies that fail to disclose their living wage strategy by 2025.

LGIM, together with other long-term investors, published an investor statement on the UK cost-of-living crisis. It sets out a list of actions for companies to address the impact of the cost-of-living crisis on their employees. This includes prioritising support for their lowest paid employees by either increasing pay to match the real living wage or make one-off cost-of-living payments.

1. Source: Antimicrobial resistance (who.int)