LGIM, National Trust Unite for Fossil Fuels Exclusion

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KnowESG_LGIM launches fossil fuel exclusions strategy
Image courtesy of LGIM

Legal & General Investment Management (LGIM) has announced the exciting launch of the Legal & General Future World ESG Developed Fossil Fuel Exclusions Index Fund, a collaborative effort with The National Trust, the largest conservation charity in Europe.

The primary objective of this Fund is to assist investors in fulfilling their commitments to divest from fossil fuels. It will kickstart with substantial seed funding and be accessible to UK investors, including charities, endowments, platforms, and wealth managers.

The Fund's introduction comes in response to the increasing demand for fossil-fuel-free solutions, with more than 1,500 institutions globally pledging to divest from fossil fuels in 2021.

The strategy aims to offer an efficient and cost-effective means for investors to reduce their exposure to fossil fuel companies, especially those with high carbon emissions and reserves. Simultaneously, the Fund strives to promote the transition towards a net-zero future while targeting sustainable long-term returns.

The Legal & General Future World ESG Developed Fossil Fuel Exclusions Index Fund aims to provide investors with exposure to UK and global equities while incorporating environmental, social, and governance (ESG) considerations through LGIM-designed indices.

This approach employs a tilting mechanism to reduce exposure to companies with poor ESG practices and increase exposure to those that demonstrate better ESG performance. By combining LGIM's positive engagement with a clear fossil fuel exclusion policy, the Fund ensures that fossil fuels remain a red line for investors.

To be included in the LGIM-designed ESG indices, companies must meet specific global minimum criteria. The Fund follows a strict exclusion policy regarding direct investments that do not align with its ESG criteria. Specifically, it aims to exclude companies with a carbon reserve intensity above 0%, encompassing fossil fuel companies within the energy, mining, and utilities sectors.

Additionally, the Fund incorporates LGIM's Climate Impact Pledge, which focuses on encouraging companies to accelerate their efforts in addressing climate change and transitioning to a low-carbon economy. In 2022, LGIM evaluated over 5,000 companies across 20 climate-critical sectors, assessing criteria such as their commitment to the net-zero transition, board composition, strategy, and transparency.

Mark Johnson, Head of Institutional Clients at LGIM, emphasises the importance of transitioning to a low-carbon economy, considering it a key priority for investors.

He notes the rising demand from charities and universities to divest from fossil fuels as they cater to the expectations of increasingly sustainability-conscious donors and students.

This partnership with The National Trust further strengthens LGIM's commitment to providing innovative and cost-effective portfolio solutions aligned with the missions of charities and institutions while generating financial returns.

Dabinder Hutchinson, Director of Finance at the National Trust, expresses delight in collaborating with LGIM to co-create this new strategy, which adheres to their required fossil fuel exclusions.

The National Trust's environmental values are integral to its investment portfolio management, ensuring vital funds are generated to fulfill their charitable purpose. Through this collaboration and LGIM's engagement programme with companies, they aim to develop more climate-friendly investment portfolios, supporting the climate transition and the ongoing battle against climate change.

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Source: LGIM

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