- None of 75 of the world’s largest asset managers has a dedicated policy on biodiversity and 39% still make no mention of climate change in their investment policies.
- Only 11% of asset managers have policies requiring portfolio companies to mitigate harmful impacts on biodiversity.
- 84% of world’s largest asset managers have no policies to exclude coal companies from their investment portfolios, 93% have no policies prohibiting investment in tar sands.
- P. Morgan Asset Management, Goldman Sachs Asset Management and Nuveen, commit in their policies to generally voting against shareholder proposals requesting transparency around corporate lobbying on climate.
An overwhelming majority of the world’s largest asset managers, with assets under management equivalent to over half of the world’s total GDP, are failing to identify and manage the harmful impacts of investee company operations on natural habitats and ecosystems, finds a new report from the responsible investment organisation ShareAction.
In its latest analysis published through two reports on asset managers’ approach to the dual challenge of biodiversity loss and climate change, ShareAction finds that none of the 75 of the world’s largest asset managers has a dedicated policy on biodiversity and only 11% of the surveyed managers state in their investment policies that they expect portfolio companies to mitigate the negative impacts of their operations on the natural environment. Often, biodiversity loss is included in generic ESG integration, with little consideration.
This is despite the fact that the loss of biodiversity is considered among the greatest risks facing society today, according to the World Economic Forum. The destruction of nature is not only affecting business bottom lines, but also bringing ecosystems closer to destabilising tipping points, which may have serious consequences for human health, global food security and the efforts to contain catastrophic climate change.
The analysis further shows that asset managers’ understanding of the systemic risks that biodiversity loss poses to their portfolios is critically underdeveloped, with only around half of managers identifying examples of biodiversity-related risks to their investments, largely with regard to environmental regulation. Still fewer managers identify any positive and negative impacts of their investments on biodiversity (33% and 32% of managers respectively).
The findings of the report indicate that, collectively, the industry is failing to integrate biodiversity into risk management, corporate engagement and financial decision-making. Only 46% of asset managers request better disclosure of the impacts of company value chains on biodiversity in their dialogue with companies and only 49% discuss corporate strategy on biodiversity.
This is despite many of their portfolio companies engaging in activities that are harming natural habitats through land-use change, overexploitation of resources, and pollution. These are compounded by rarer environmental disasters caused by business operations, such as oil spills or tailings dam failures, which are catastrophic for local biodiversity.
Despite deforestation being the main focus of biodiversity-related engagement by asset managers, only 31% of managers engage on certifications guaranteeing minimum sustainability standards in the sourcing of palm oil and other soft commodities. The inclusion of other biodiversity-related topics in corporate engagement is still less widespread: less than 10% of asset managers indicate that they engage on the issues connected with overfishing, ocean health and World Heritage Sites protection, and only three asset managers mention instances of engagement on company impact on pollinators.
While the conversation around climate change has, to date, been more progressive than that around biodiversity, with climate-related risks now widely understood as systemic and financially material, the research released by ShareAction shows that many of the world’s largest asset managers still neglect the climate-related impacts of their investments.
Alarmingly, 39% of the surveyed asset managers, with over US$22 trillion in assets under management make no mention of climate change in their public investment policies and only a small percentage make specific commitments relating to portfolio decarbonisation. The analysis finds, for example, that 84% of world’s largest asset managers have no policies to exclude coal companies from their investment portfolios and 93% have no policies prohibiting investments in tar sands, one of the most carbon-intensive fuels.
The report also highlights how some investors’ tacit consent to corporate lobbying against climate policy further widens the gap between climate change rhetoric and action within the industry. It finds that only 15% of assessed asset managers consider company involvement in trade groups opposing climate policy to be an engagement priority. Still more alarmingly, large asset managers such as J.P. Morgan Asset Management, Goldman Sachs Asset Management and Nuveen, while claiming to support a low-carbon transition, actually commit in their policies to generally voting against resolutions calling for transparency on corporate lobbying.
Krystyna Springer, an analyst at ShareAction and author of the report, says: “The current pandemic is a sharp reminder of the consequences that human encroachment on ecosystems can have for the global economy and human health. This is only the latest in a tide of disease outbreaks that have emerged over the last few decades, driven by land-use change and habitat depletion.
“Covid-19 has also shown that predicting the timing and the scale of shocks originating in the natural world is fraught with complexity, and cannot be managed through the lens of financial materiality and the traditional risk-return approach. Biodiversity loss is not a new, in-vogue ESG theme - it is closely intertwined with the climate crisis and threatens to compromise the efficacy of global climate action, and if economic actors don’t start tackling it in the next few years, the damage will irreversible.
“The window of opportunity is closing rapidly as we enter a critical decade. We need transparency and urgent and disciplined action by asset managers, asset owners, regulators and policymakers, for a fundamental shift towards a truly sustainable and resilient global financial system.”
ShareAction has also published an analysis of the sector’s underwhelming approach to responsible investment, and a study which found that the largest asset managers are merely paying lip service to tackling human rights abuse.
Notes to editors:
- For more information contact Beau O’Sullivan at email@example.com or +447950 299 491
- The asset manager report on biodiversity can be found here.
- The report on climate change can be viewed here.
- ShareAction selected 75 of the world’s largest asset managers for this study. The assessment scope was determined based on the IPE’s 2018 Top 400 Asset Managers list, however this was balanced against regional concentration to ensure the inclusion of 40 largest European asset managers and 20 largest US managers, with 15 managers from other regions. The assessment is based on direct disclosures (69 asset managers) and public disclosures (6 asset managers) released no later than October 2019. The findings relating to asset managers’ policies with regard to climate change and biodiversity have been updated to reflect the content and commitments made as of March 2020.
- These reports are the last two in a series of four reports on the asset management sector. Part I of the series discusses asset managers’ performance on responsible investment governance and Part II focuses on asset managers’ approaches to human and labour rights.
- ShareAction is a campaigning organisation pushing the global investment system to take responsibility for its impacts on people and planet, and use its power to create a green, fair, and healthy society. We want a future where all finance powers social progress. For 15 years, ShareAction has driven responsibility into the heart of mainstream investment through research, campaigning, policy advocacy and public mobilisation. Using our tools and expertise, we influence major investors and the companies they invest in to improve labour standards, tackle the climate crisis and address inequality and public health issues. Visit shareaction.org or follow us @ShareAction to find out more.