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Process for engagements run internally

LEA 03. Process for identifying and prioritising engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate whether your organisation has a formal process for identifying and prioritising engagement activities carried out by internal staff.

03.2. Describe the criteria used to identify and prioritise engagement activities carried out by internal staff.

other description

          Flags from LGIM's proprietary ESG tool, media report, link with theme or policy.
        

03.3. Additional information. [Optional]

Client objectives sit at the heart of our engagement decision-making. When planning engagements we consider ESG issues that could affect the value of our clients’ assets, both directly and indirectly in the short to long term.

When deciding an engagement strategy we will consider our ability to influence to effect change and the approach required. Note that we have recently reviewed our engagement strategy to reflect the evolution of our asset base. We take into account the following non-exhaustive list of factors when deciding whether to engage with a company:

  • link with theme or policy
  • Identified as one of the 84 globally 'most systemically important' companies included in LGIM's Climate Impact Pledge
  • company market cap and LGIM’s holdings in the company
  • controlling shareholder
  • access to a company’s management
  • score on our proprietary ESG tool
  • previous interactions with a company
  • general company insight
  • the appropriateness of engaging individually or collaboratively with other investors or industry associations, public policy actors, sector specialists and regulators
  • the need for further in-depth research to be undertaken or commissioned
  • the timeframe and expected milestones of an engagement
  • the ability to effect change
  • voting issues
  • media report

Sitting behind this method of selection is a longer-term strategic planning process for engagements. We set a long term strategy amongst the team when we review our progress towards and approach to delivering on our mission and strategy, and plan and prioritise engagements accordingly.

In 2017 we have been engaging on the following topics executive pay; gender diversity; climate change; cyber security; transparency and short-termism. However engagement is not limited to purely ESG items, but covers governance in its broadest sense looking at all material issues including regulation, listing rules, mergers and acquisitions, corporate strategy, and capital and financial management.


LEA 04. Objectives for engagement activities

New selection options have been added to this indicator. Please review your prefilled responses carefully.

04.1. Indicate if you define specific objectives for your engagement activities.

04.2. Indicate if you monitor the actions that companies take during and following your engagements activities carried out by internal staff.

04.3. Indicate if you do any of the following to monitor and evaluate the progress of your engagement activities carried out by internal staff.

04.4. Additional information. [Optional]

As mentioned in question 01.4, our engagement activity is a combination of proactive and planned engagement and more reactive engagement.

The corporate governance team sets long-term strategic engagement targets which we use to plan and prioritise engagement and define engagement strategic objectives. Note that we have recently reviewed our long-term targets, taking into account LGIM’s five year strategy set out in 2017.

For 2017, we publicly disclosed the following annual objectives in relation to the five year strategic plan:

  • Engage with 84 companies as part of Climate Impact Pledge.
  • Engage with governments and companies to promote more disclosure on pay ratios
  • Engage with US companies on gender diversity
  • Formally invite external stakeholders to roundtables to strengthen our Corporate Governance and Sustainability policies

Clear and specific objectives are set at the start of each engagement and reviewed throughout the engagement process. Note that some of these objectives are disclosed publicly in advance of the engagement activity, for example under LGIM’s Climate Impact Pledge.

Tracking engagement activities

LGIM uses Salesforce, a bespoke data management system, to support the team’s engagement work. This system is used for our reporting purposes and to allow management to oversee the progress of engagement activities.

Monitoring progress and identification of need for escalation

The corporate governance team regularly monitors companies against the objectives set at the start of the engagement process to identify change. Actions taken by companies are monitored through direct communications by companies, media reports, regular exchange of information with investment teams, analysis of resolutions prior to a shareholder meeting. Another efficient way for LGIM to monitor companies objectively is to use LGIM’s ESG proprietary tool which collects external data and analysis from 6 different external third party sources and assesses and scores companies based on this data.

Internal Risk Management System – auditing of engagement

There is a clear audit trail of the engagement process, which enables us to report and communicate effectively on our activity both internally to the Corporate Governance Committee or investment teams and externally to our clients.

LGIM has its own internal Risk Management System (RMS) to provide effective oversight of key processes. This includes LGIM’s voting and engagement activities and related client reporting. If an item is not confirmed as completed on RMS, the issue is escalated to line managers and senior directors within the organisation.

Example of how we have monitored and evaluated progress in a  particular engagement:

During 2015 and 2016, we have engaged privately with a company on their succession plans at the board and executive level. The company’s chairman, who LGIM supported, had been in the role since 2010. Additionally the company’s Chief Executive Officer (CEO) who had been in this role since 2011 indicated his wish to step down in due course.

LGIM engaged proactively with the company during 18 months. All meetings and information discussed at these meetings was saved in our data management platform.

We worked in collaboration with and regularly updated our investment teams throughout the process.

The company later announced the current chairman would be departing in 2017 and confirmed the name of the successor. The company also confirmed the succession plan for the CEO position. This engagement was saved as a ‘success’ on our platform

 


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