Climate Action – two years on

Over the last two years, we have taken positions in over 50 stocks and held over 300 meetings with portfolio companies in relation to this partnership. Here are our top lessons learned through this engagement:

1. Focusing on the long term through the noise has the potential for unique value

In the last two years, the discourse around the energy transition and the pressure on companies to act to reduce their emissions have drastically changed. In this challenging backdrop, our engagements have doubled down on targeting long-term value creation with positive actions that seek to drive down corporate emissions. Not only are companies responsive to investors focusing on long-term strategy and capital allocation decisions rather than having a myopic focus on the next quarter, but we also maintain a strong conviction that companies need to position themselves strategically through the energy transition to succeed. This is especially the case in the energy and materials sectors, where companies will be the most affected by the energy transition and where investor pressure to focus on business-as-usual activities is particularly strong.

2. Developing lighthouse engagements is key

Given the level of uncertainty around the energy transition and a tendency for some management teams to be anchored by legacy, companies are often reluctant to be ‘the first’, whether with radically re-thinking business models or with changing disclosure practices. We are therefore focusing on developing lighthouse engagements with companies with whom we have deep relationships and sense an alignment of vision. These lighthouses can then serve as examples and proofs of concept for other companies. We believe changing the way we allocate our engagement efforts to go deeper faster with front-running companies will increase the effectiveness of our strategy. We have encountered this challenge particularly in consumer-facing sectors, where end consumers’ willingness to pay for more climate-friendly products is the key debate, and early proof points are essential.

3. Influence goes beyond direct engagement

While direct engagement with companies is critical, we have found that leveraging our influence beyond our portfolio companies can be a powerful tool. An example of this has been our engagement with the London Metals Exchange*: we are publicly supporting its efforts to create separate contracts for metals with high sustainability credentials, to provide pricing signals for mining supply chains to invest in sustainability. This engagement stemmed from the realisation that mining companies need to be able to catalyse commercial value for making investments in decarbonisation, but that existing commercial practices did not enable this. Our support for the LME initiative underpins our continued engagement with mining companies to reduce their emissions, while the companies see us as an even more credible partner thanks to our broader sectoral engagement.

Case studies – engagement in action

Anglo American* – supporting a fundamental strategic shift

Our initial position in Anglo American was underpinned by our conviction in the looming supply deficit in copper, due to the industry’s inability to invest in sufficient capacity growth in recent years.[2] Anglo holds a valuable copper growth pipeline as well as an enviable track record as a project developer, which was not priced by the market in late 2023 due to operational challenges. We were concerned that the company’s low valuation made it exposed to a takeover by a larger peer, which we believed would risk reducing the combined entity’s ability to deliver supply expansion, while diluting Anglo’s distinctive culture and sustainability track record.

We engaged with the company in mid-April 2024 to propose an action plan to restore market confidence, which involved a very significant portfolio restructuring: farming down their crop nutrients project, selling their metallurgical coal business, re-structuring its South African platinum and iron ore businesses, disposing of its diamond business and finally, merging with a hypothetical similarly sized company.

We were delighted that the company’s announcements of a strategic shift in May 2024 closely followed the first four points of that plan.[3] The September 2025 announcement that Anglo American is seeking to merge with Teck Resources means the last step we had laid out may be fulfilled soon, creating a copper-focused company with a strong sustainability track record. Throughout this engagement, we leveraged our profile to publicly support the management team’s actions, through the restructuring process and the merger announcement.

Tyson Foods* – a closed door

Our food systems are responsible for a third of emissions[4], and yet often lack the equivalent attention from investors and policymakers. For companies like Tyson Foods, we believe the transition offers risks, but also opportunities – if navigated effectively. In the context of tight US beef supply, the industry has a chance to reinvent itself towards premium, sustainable proteins with transparent supply chains – all characteristics likely to be increasingly in demand in coming years. We entered our position in Tyson Foods optimistic the company would be interested in exploring ways to seek long-term value creation for its shareholders.

However, despite our best efforts, including multiple meetings with investor relations and correspondence with senior management, the company has failed to engage in meaningful dialogue. We ultimately decided to exit our position.[5] While disappointing, Tyson’s unwillingness to consider shareholder feedback offers valuable lessons. We’ve generally found framing climate-aligned investments through the lens of long-term value creation – ‘speaking to the wallet’ – is well-received by the companies we talk to. This case, however, is a reminder decision-making is rarely driven by dollars and cents alone. A strong sense of legacy and identity, along with a belief in cyclical recovery – even in the face of long-term structural headwinds – can all act as barriers to engagement. It also reflects how, during periods of heightened operational pressure, some companies may retreat to familiar territory rather than embrace new ideas.

Heidelberg Materials* – influencing disclosure to shape market perception

Cement is responsible for about 8% of global emissions, and a majority of these emissions stem from the cement manufacturing process rather than the fuel burned to produce it, meaning they are particularly hard to abate. The only relatively mature technology available today to nearly fully decarbonise cement manufacturing is Carbon Capture and Storage (CCS), which imposes a net cost on producers. The arrival of the Carbon Border Adjustment Mechanism (CBAM) in the EU represents a seismic change in the sector – for the first time, producers will have to pay the EU carbon price on all of their emissions, as free allocation of emission allowances are phased out over the next few years. This fundamentally changes the economics of low-carbon cement.

We took a position in Heidelberg Materials as we saw it as uniquely well-placed to benefit from this change, thanks to its industry-leading pipeline of CCS projects and emissions intensity reduction target. The market was not valuing this advantaged position in late 2023, evident in the company’s 20% discount to peers CRH and Holcim and its valuation at ~4x 2024E EV/EBITDA in late 2023, relative to 5.9x five-year average.[6]

We engaged with the company, on several occasions in advance of its May 2025 Capital Markets Day to encourage the leadership to improve disclosure to investors of the value framework for sustainability, to catalyse the value from its sustainability strategy as soon as possible, and to reduce calls for a re-listing or a separation of the US business. The Capital Markets Day met our expectations on disclosure, and since we initiated the position, Heidelberg’s share price has more than doubled, the stock has outperformed its peers by 20-30% over the period[7], and it has re-rated to over 9x EV/EBITDA.[8] This has coincided with a period where the company has meaningfully demonstrated its ability to deliver on one of the most ambitious emissions intensity reduction targets in the sector, aiming for <400t CO2/t cement by 2030,[9] while it is also about to start selling its zero-carbon cement product.

 

* For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an L&G portfolio. Case studies shown for illustrative purposes only. The above information does not constitute a recommendation to buy or sell any security.

Whilst L&G has integrated Environmental, Social, and Governance (ESG) considerations into its investment decision-making and stewardship practices, this does not guarantee the achievement of responsible investing goals within funds that do not include specific ESG goals within their objectives.

[1] For the purposes of this article, all references to ‘emissions’ refers to carbon emissions.
[2] IEA, Global Critical Minerals Outlook 2024
[3] Apart from farming down the crop nutrients project, which will be considered again in 2027 once feasibility studies have been completed.
[4] Source: Poore & Nemecek (2019) Reducing food’s environmental impacts through producers and consumers.
[5]  Please note, this decision to exit the position applies to climate-action investments only.
[6] L&G analysis based on Bloomberg data
[7] Past performance is not a guide to the future.
[8] L&G analysis based on Bloomberg data
[9] L&G analysis based on Heidelberg and Science-Based Target Initiative dashboard