Welcome to the first publication of InvestorPlace’s new series of interviews within the high-stakes world of hedge funds and investment banking – The InvestorPlace Q&A.
In this series, we invite a manager to speak directly to Main Street investors, whether discussing the firm’s technologies, strategies or investments for the year ahead. Our goal is to put the spotlight on fund managers and other institutional investors of note, providing a detailed look into their management styles, world views and investing strategies.
Our first interview is with Nigel Wilson, the Group Chief Executive of Legal & General. Nigel is noted for winning the Change Makers award in 2019 for his inspiring work as a leader in inclusive capitalism. He was also a recipient of the “Most Admired Leader” award at Britain’s Most Admired Companies Awards in 2017, the results of which were published in Management Today.
In 2015-2016, Nigel was a member of the Prime Minister’s Business Advisory Group. He was also City AM’s “Business Personality of the Year” in 2014. Nigel’s qualifications include a PhD from the Massachusetts Institute of Technology where he was a Kennedy Scholar and a recipient of the Alfred P Sloan research scholarship. Nigel also spent some time with the National Bureau of Economic Research (NBER).
Legal & General, a London-headquartered multinational financial services company, manages $1.4 trillion in assets, making it the 10th largest investment management firm in the world by AUM.
In our time together, Nigel and I discuss L&G’s Climate Impact Pledge, corporate short-termism and ESG investing:
John Kilhefner, Managing Editor, InvestorPlace: Tell me about the Climate Impact Pledge.
Nigel Wilson, Chief Executive, Legal and General: The Climate Impact Pledge is both a kind of environmental watchdog for the business sector and a way to begin to hold organizations accountable for their impact on the planet. Legal & General’s Investment Management unit is now in its third year running the Pledge, which tracks and assesses the performance of more than 80 of the world’s largest companies in terms of their strategies to reduce their carbon footprint as quickly as possible, and try to arrest global warming. Since we hold that the current climate emergency in which we find ourselves could have disastrous consequences for markets, companies, and, closer to home, our company’s assets, we think it’s imperative to demand that companies we’re invested in act responsibly and get on the path to sustainability. It is good business sense.
InvestorPlace: How does L&G engage with companies to encourage and stimulate sustainable change?
Wilson: What sets our Climate Pledge apart, I believe, is that we actively engage with the companies using proxy voting and constructive direct meetings to encourage them to improve their strategies to move to a low-carbon economy, as well as publicly praising those who do. We divest from companies that fail to demonstrate sufficient action on climate change, and vote against re-election of the board chairs of those companies. Last year all eight companies that we had publicly named as climate laggards—and in some cases divested from—proceeded to engage with us. This challenges conventional wisdom that there is a disconnect between divestment and constructive engagement.
Furthermore, some of the companies were removed from the divest list this year, having improved significantly by the time of this year’s report. However, we’ve added five more companies, mainly because of insufficient strategic awareness of climate change. We need to know that the companies we’re invested in track the metrics on the global warming trajectory. Without innovation and bold thinking, no progress will occur—in other words, companies need to go beyond mere compliance, especially in light of policy failures such as the U.S. Administration’s continuing retraction of environment-protecting pacts and policies. To this end, L&G is investing in transformative technologies as well as established renewables. All new and retrofit buildings we touch are carbon and energy efficient. And on an operational level, we are looking into limiting sky travel for business meetings—Skype or equivalent technology works just fine for many of them, so let’s use it!
InvestorPlace: Company directors are instrumental to corporate strategy. How much of an emphasis does L&G place on changing director behavior?
Wilson: Board governance — its composition in terms of diversity, tenure and skills, and its independence — is crucial to setting a structure that can react to the climate emergency. In our engagement with directors, what we’re really advocating is a reframing of the fundamental corporate identity to make sustainability a defining characteristic of the organization. As such, we explicitly link and rate governance statistics to our climate impact pledge. In this way sustainability in action can be brought to the level of strategic thinking at the C-suite level.
InvestorPlace: In your view, is shareholder primacy to blame for corporate short-termism and corporations’ lack of motivation in properly assessing the financial risk climate change poses?
Wilson: Shareholder primacy is only one factor. Companies certainly have an obligation to themselves and their shareholders to make a profit, but they can no longer be only for themselves and their shareholders. As above, they need to adopt new frameworks that rebalance risks and opportunities with a long-term view, for a greater benefit than just the company’s—for example, by taking a proactive stance toward ESG principles in both investment and their internal culture. For most investors and asset managers, including my company, risk has thus far outweighed opportunity in most strategic decision making, leading to entrenched ways of doing business, this will change overtime.
InvestorPlace: Critics have noted that environmental and social investing is more cosmetic than effective or even profitable. What do you say to these criticisms?
Wilson: I feel this is no longer a numbers game, but the ticking of a clock. The urgency of climate change, and thus of ESG investing, is outpacing the established rules of the market. Climate will start to reprice assets. We really need to engage in a more inclusive form of capitalism. I’ve written a lot about this, but essentially, with respect to environmental and social investing, many top companies are realizing that in order to survive long-term, hitting quarterly numbers no longer eclipses everything.
InvestorPlace: What other issues should be addressed and actions should be taken to move toward a system that prioritizes ESG factors, even at the expense of short-term profits?
Wilson: On an even bigger scale, I believe that business needs to play a part in finding real solutions to our market and policy problems—social as well as planetary—and they can do this by practicing inclusive capitalism. This includes responsible investing that takes a long, patient view and benefits broad swathes of people. It creates new initiatives that shore up troubled “second” cities and uses technology innovatively for the financial betterment of more people. This use of capital should, in the end drive inclusivity while still making a profit. It’s what we’re doing at Legal & General. I hope other institutional investors will follow this lead.
John Kilhefner is the managing editor of InvestorPlace.com. As of this writing, Kilhefner did not hold a position in any of the aforementioned companies. If you have questions about the site or suggestions about our content, email us at firstname.lastname@example.org. Want to pitch us an article? Send your ideas and tips to email@example.com, and if we like it, you’ll hear back from us!