STEWARDSHIP WITHIN THE HL GROWTH FUND
Stewardship and engagement aim to encourage responsible business practice. It can drive positive change within the companies we invest.
Stewardship can be a force for positive change. For example, by applying pressure in the boardroom to set more stretching emission reduction targets, uplift the treatment of workers and suppliers, or improve diversity within management.
The HL Growth Fund is made up of funds provided by Legal & General Investment Management (LGIM), who we have appointed to run the fund to our specification. We delegate the Stewardship of the fund’s holdings to LGIM too.
LGIM has significant experience in investing responsibly. In December 2023, they received a 5-star ranking from the United Nations Principles for Responsible Investing (UNPRI) for the strength and depth of their stewardship in five areas: Policy governance and strategy, Passive equity, Real estate, Fixed income (SSA) and Fixed income (corporate).
The Climate Impact Pledge
LGIM has selected around 5,000 companies worldwide who operate in climate-critical sectors. Think Airlines to Aluminium, Food to Forestry. Companies covered by the Climate Impact Pledge (CIP) are subject to targeted engagement, unique to the sector in which they operate.
LGIM set minimum criteria which they expect companies covered by the CIP to meet. These minimum standards are designed to be impactful within the constraints of the company’s sector and are intended to Steward the company toward a more sustainable long-term business model.
If, after a period of engagement, a company is failing to demonstrate progress towards LGIM’s targets under the CIP, they will sell their holding in that company (effectively adding it to the exclusion list) and vote against the company’s management. This way, they hope to be a driving force for change, with excluding a company as a last resort if they do not appear to be committed to tackling the climate crisis.
Engagement Case Studies
Nippon Steel Theme: Environment Sector: Materials
Upon assessment, Nippon Steel underperformed its peers on climate policy engagement & disclosures. As a result, LGIM have directly engaged with Nippon Steel with little progress made, and more recently co-filed a shareholder resolution to force a vote on requiring the company to make annual climate related disclosures. The resolution was supported by 28% of all shareholders, which sends a clear message to Nippon Steel’s management board that shareholders expect greater climate transparency.
McDonald’s Theme: Social Sector: Consumer Discretionary
Antimicrobial resistance (AMR) is a significant global health threat, potentially causing a 3.8% loss in global GDP according to the World Bank. For this reason, LGIM have engaged with McDonald's since 2021 to encourage the adoption of stricter antibiotic usage policies throughout their beef and pork supply chains. , A 2023 shareholder resolution co-filed by LGIM to comply with WHO guidelines gained 18% support, and they attempted to file a similar resolution this year which McDonald’s declined to table. Looking forwards, LGIM plan to team up with other like-minded investors to broaden their engagement efforts on this issue not just with McDonald’s, but with companies across the meat product supply chain.
Tesla Theme: Governance Sector: Consumer Discretionary
LGIM has been engaging with Tesla on executive compensation, emphasizing the need for pay to drive positive corporate behaviour and performance. They voted against the 2024 resolution to re-ratify Elon Musk's 2018 performance-based stock options, citing concerns over the excessive total award value and its failure to align Musk's interests with those of Tesla shareholders. Despite the company's significant financial growth, LGIM highlighted unresolved issues, including the lack of a clear future compensation plan for Musk and potential economic dilution. The resolution received 76.2% support, but LGIM's vote reflects their commitment to their principles on executive compensation.