Legal & General has defended its decision to retain Shell as one of the top stocks in its climate-conscious fund despite a pension client raising concerns about the oil corporation’s inclusion.
PensionBee, an online pension provider that handles £650m worth of client assets, said it was being inundated with questions from its customers about the composition of one of Legal & General Investment Management’s Future World Funds, which counts Shell among its top 10 holdings.
“While Shell has made some progress in the right direction, our customers are asking us on a daily basis whether Shell’s business model is sufficiently transitioning to a low-carbon economy to warrant continued inclusion in this responsible investment plan,” PensionBee’s chief executive, Romi Savova, said in a letter sent to LGIM this week.
PensionBee, which has more than 60,000 customers, is believed to be one of the fund’s top five owners, with about £50m invested.
LGIM’s Future World Funds are governed by its “climate impact pledge”, which means it can exclude companies over poor governance and weak climate disclosures, as well as lobbying politicians on policies that risk accelerating the climate crisis.
Big oil companies need to cut their carbon emissions by 35% by 2040 to achieve the goals of the Paris climate agreement, according to a recent report by the financial thinktank Carbon Tracker. But Shell is forecast to increase its combined oil and gas output by 38% by 2030.
“This is a puzzling situation and one that is compounded by Shell’s refusal to disclose its future production schedule and whether it is indeed on track to meet its global obligations,” Savova said.
LGIM, which is one of the UK’s biggest fund managers with £1tn in assets, has acknowledged that the oil and gas industry cannot continue to expand if the world is to meet climate targets. “However, there is no widespread agreement on what individual companies need to do,” it told PensionBee.
The fund manager stressed the need to “balance” environmental and financial concerns when putting together the investment portfolio. “The fund has already significantly reduced exposure to hundreds of carbon-intensive stocks. Further exclusions might have unintended financial impacts. For example, Shell is one of the largest payers of dividends in the UK.”
LGIM said it was seeing “positive signs” from the oil company, which this year announced plans to quit the American Fuel and Petrochemical Manufacturers lobby group over differing views on climate policy. Shell has also gone further than most of its peers by setting carbon reduction targets that include customer emissions and investing in low-carbon technologies, the asset manager said.
LGIM, which has become one of the most outspoken fund managers over the climate crisis, said the oil company could do more and it was pushing for greater transparency on how Shell’s production plans aligned with the Paris agreement. LGIM also plans to monitor how Shell meets its emissions targets.
The investment firm said if it had significant concerns about Shell’s climate strategy it would vote against the chair of the business or dump its shares from its Future World Fund.
Shell said the company fully supported the Paris agreement and had already invested billions of dollars in a range of low-carbon technologies including biofuel and wind power. “We’re committed to playing our part, by addressing our own emissions and helping customers to reduce theirs.”
