Legal & General Investment Management (LGIM) has incorporated ESG considerations as well as its climate impact pledge into the default funds for the 3.3 million members in its master trust and contract-based schemes.
The move comes as LGIM released its 2020 annual climate pledge, which has been expanded to assess over 1,000 of the world's companies on climate, significantly broadening its coverage, as well as how LGIM engages with them to improve the way they address the net-zero carbon emissions challenge.
As part of the pledge, companies identified as falling short of LGIM's minimum standards will be subject to actions, including voting against the company on key issues and ultimately, potential divestment.
LGIM head of DC Emma Douglas said: "This is a significant leap forward and will mean that our DC investors can be assured that their retirement savings are influencing real and positive change. We have always considered ESG to be a financially material consideration and we know this is echoed by the views of our clients and individual members.
"In a recent survey amongst our membership, nearly half of DC savers preferred a policy of engagement in the first instance, before divesting. We are finding the concept of ‘engagement with consequences' really resonates with our members. Incorporating the framework of this expanded climate pledge into our defaults allows us to do exactly that."
She added: "Our latest climate impact pledge also supports trustees and employers to fulfil two of their most important responsibilities enabling a greater alignment between members' investments and their values, and helping to meet their increasing regulatory duties or business objectives.
"The pledge aligns well with our pilot project with Tumelo, a fintech platform that allows members to indicate how they would vote on the key issues at the companies they hold in their funds, as we strive to further educate, support and empower our member base on the role and impact of their pension savings on society."