20 Oct 2021 3 min read

4 tips for integrating ESG into LDI

By Anne-Marie Morris (née Cunnold)

Following our recent blog on ESG considerations in buy and maintain credit, we look at how to bring ESG more effectively into LDI mandates.


At LGIM, we’re celebrating 20 years of implementing LDI mandates for our clients, and reflecting on what has changed over this time.

While the integration of ESG criteria has always been a core pillar of our investment beliefs, we have nonetheless formalised and enhanced this over the years to reflect the evolving landscape. Indeed, it turns out that our blog just one year ago on this subject is in fact already out of date.

Here, we share four principal ways we believe pension schemes and other users of LDI or broader derivative mandates could explore in seeking to integrate ESG considerations today.

1) Embed ESG into counterparty review

We believe that incorporating ESG factors into creditworthiness assessments is a logical step, not only from a governance perspective but also when considering the potential ESG risks of the companies to which a financial institution provides financing. 

2) Engage with counterparties to drive positive change

In our view, this is particularly pertinent for those who have the scale to use their influence to engage with counterparties, not just to understand their ESG position but also to encourage them to improve it. It’s even stronger when the full business stands united, from the view of dedicated ESG teams and analysts to portfolio managers and traders. At LGIM, in 2020 our Investment Stewardship team engaged with 17 of our counterparties – around half our full counterparty panel – on a variety of topics. We believe that the financial sector has a pivotal part to play in the transition to net-zero carbon emissions in line with the Paris Agreement goals, and our Climate Impact Pledge reflects our deeper and broader engagement on climate, holding around 1,000 companies to our high standards.


3) Engage on governance

An example here is with HM Treasury and associated parties on green gilts. We believe it is important to take a long-term perspective and focus on addressing key themes and emerging governance and sustainability issues. You can read some of our thoughts on green gilts and recent developments, which explain some of the engagement we have undertaken at LGIM.

4) Check whether ESG is incorporated within cash funds

We believe it’s important to check carefully whether cash funds incorporate ESG factors, and what difference there really is versus a ‘non-green’ version. Just like counterparty creditworthiness reviews, in our view it’s important to include ESG as part of the overall credit quality assessment for our liquidity solutions, highlighting any potential credit quality deterioration or improvement due to ESG issues within the investment horizon of the portfolio.  


We believe ESG risks represent a material systemic risk for long-term investors. Both investors and their asset managers should, in our view, influence the broader investment industry, governments, regulators, policymakers, as well as companies, even in the potentially more challenging area of LDI and derivatives.

Anne-Marie Morris (née Cunnold)

Head of DB Solutions Strategy

Anne-Marie leads the team responsible for the strategy of objective-driven investment solutions, principally for Defined Benefit Pension Scheme clients. In partnership with the Solutions Portfolio Management team, her team structures and delivers strategies across LGIM’s derivative overlay, LDI and CDI strategies including Buy and Maintain credit. Anne-Marie joined LGIM in 2012, bringing industry experience from prior roles including investment strategy at BlackRock and senior fund manager in structured investments and solutions at Close Brothers Asset Management. Anne-Marie is a CFA charterholder, holds the Financial Derivatives paper from the CISI diploma and graduated from Cambridge University with a first class honours degree in Natural Sciences (theoretical physics). When not eulogising about derivatives and LDI, Anne-Marie might be found exploring historic buildings with her two boys.

Anne-Marie Morris (née Cunnold)