The UK’s biggest fund manager has bowed to client pressure and agreed to launch its first fossil fuel-free ethical pension fund later this year.
Legal & General Investment Management (LGIM), which has been one of the most outspoken fund managers over the climate crisis, made the decision after a number of clients raised concerns that stocks such as Shell were still being included in its range of ethical funds.
Those clients include PensionBee – an online pension provider that handles £750m-worth of client assets for more than 75,000 customers – which is expected to be among the new fund’s first investors.
It wrote to LGIM last year after being inundated with questions from its own customers about the fact that Shell was among the top 10 holdings in one of the investment firm’s ethically focused Future World funds. PensionBee is believed to be one of the fund’s top five owners, with more than £60m invested.
“It is clear that there is increasingly strong demand for pension products that give customers the choice to divest from oil,” PensionBee said.
While the full stock list for the new fossil fuel-free fund has not yet been confirmed, it will exclude oil companies and take a wider ethical stance by barring investments in tobacco, weapons makers and pure coal manufacturers.
Emma Douglas, the head of defined contribution at LGIM, said: “Based on our funds in our Future World range, the new fund will be driven by long-term thematic analysis, the integration of environmental, social and governance (ESG) considerations and active ownership, which means engaging to bring about real, positive change in the companies we invest in.”
LGIM, which has more than £1tn in assets, said the fund will be open to corporate pension schemes and individuals.
The investment firm has defended holding Shell in its Future World range of funds. Those funds are governed by its climate impact pledge, meaning it is willing to exclude companies over poor governance and weak climate disclosures, as well as for lobbying politicians on policies that risk accelerating the climate crisis.
LGIM has said it needs to balance environmental and financial concerns when putting together the investment portfolio, previously noting that Shell is one of the largest payers of dividends in the UK.
Its climate pledge has led LGIM to dump stakes in China Construction Bank, Rosneft Oil, Japan Post Holdings, Subaru, Loblaw and Sysco Corporation in 2018.
Last year, it cut a further five stocks from the ethical funds, including the oil corporation ExxonMobil, the insurer MetLife, the maker of Spam, Hormel Foods, the US retailer Kroger and Korea Electric Power Corporation (Kepco) last year.
However, a Guardian analysis last year also found LGIM as a whole had spent about $367m (£285m) between January and November, increasing its stake in those companies in other parts of the business, even when accounting for the divestments.
LGIM openly admits it continues to hold stakes in companies excluded from those environmentally and socially focused funds, saying it gives them the opportunity to engage with the board and ultimately influence company behaviour.
Commenting on the launch of the fossil fuel-free fund, PensionBee said: “We hope this is just the start of all savers using their investments to transform the world they live in – for the better of the planet, society and their retirement.”