LPLC Sustainability Policy approved 16 September 2020
1. This Policy Statement sets out the Legal Practitioners’ Liability Committee’s (LPLC) approach to ensuring the long-term sustainability of investment returns and management of the risks and opportunities associated with environmental, social and governance (ESG) issues in its investment portfolio.
2. ESG issues include:
(a) Environmental - climate change risks in the transition to a lower carbon economy, pollution, waste products, disposal of toxic products, water supply and poor management of the environment
(b) Social – labour rights, community relations, workplace health and safety and diversity
(c) Governance – corporate culture and enterprise risk management
3. This Policy Statement applies across LPLC’s investment decision-making and investment monitoring framework and reflects LPLC investment model in which Committee members determine the investment strategy (based on advice from external investment advisers) and outsource investment management to specialist third party investment managers for the majority of assets.
4. LPLC believes that:
(a) successful long-term investing is consistent with the allocation of capital to enterprises with sustainable business practices
(b) the integration of ESG issues into its investment processes enables it to better manage risk
(c) incorporating ESG risk considerations and wider societal impacts into investment decisions aligns with its obligations to policyholders and other stakeholders.
LPLC’s approach to sustainability is determined by Committee members, on advice from the Investment Committee and LPLC’s investment advisers.
LPLC will consider material sustainability issues in the selection, management and monitoring of investments and investment managers.
LPLC will appoint investment advisers that integrate ESG considerations into their services.
When determining the investment strategy and asset allocation the Committee will seek advice from its investment advisers that includes consideration of ESG issues with climate-change scenario analysis alongside economic scenarios.
When appointing investment managers across all asset classes, the Committee and its investment advisers will apply the following due diligence principles in relation to ESG:
- Review the investment manager's philosophy in relation to ESG and how this translates to consideration of ESG issues in their investment process
- Seek to understand how an investment manager integrates ESG in its investment process
- Ensure that the selection of investment managers for investment portfolios will consider the investment manager's approach to ESG together with other investment considerations.
Within the equities asset class, LPLC has a preference to up-weight equities investments into stocks and industries expected to benefit from sustainability themes and to down-weight those expected to be detrimentally impacted.
LPLC’s investment monitoring program seeks to capture and monitor ESG-related activities that investment managers have undertaken and LPLC will require its investment advisers:
(a) to annually review the ESG approach for each of the investments within LPLC’s portfolio
(b) to annually report on the ESG risks in LPLC’s portfolio through an ESG risk report and/or carbon exposure report
7. Impact investing
LPLC is willing to consider investments that are intended to have a measurable, positive social and/or environmental impact alongside a financial return. The Committee will consider these investments on advice from the Investment Committee and LPLC’s investment advisers.
LPLC may decide to exclude or limit investment in stocks or industries based on non-financial considerations after assessing social, reputational, legal and practical considerations.
LPLC has approved the following exclusions:
- direct investment in controversial weapons (cluster bombs, land mines, depleted uranium, chemical and biological weapons) and limit any indirect exposure.
- where reasonably practicable, LPLC seeks to limit equities investments in stocks deriving a significant proportion of their profits from fossil fuel production, tobacco manufacturing and vice industries (alcohol, gambling and adult entertainment).
LPLC acknowledges that it may retain indirect exposure to stocks and industries it may otherwise wish to exclude via managed/pooled fund structures and derivative instruments based on indices that include these stocks and industries.
LPLC will seek opportunities to be informed of material ESG issues and emerging trends by monitoring relevant publications and through dialogue with LPLC’s investment advisers.
The Committee oversees an investment model primarily using external investment managers. The Committee has delegated its voting rights to these specialist investment managers and expects the managers to vote in the best interests of LPLC.
LPLC’s investment managers may engage with the companies they invest in on behalf of LPLC by meeting with company management to raise ESG issues and concerns.
LPLC will publish this policy statement on its website and publish information on ESG activities in its annual report.
Approved by LPLC on 16 September 2020