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Race to the top: A leading practice guide to responsible investment

We have published a leading practice guide for asset manager responsible investment.

By Isobel Mitchell, Senior Officer, ShareAction

Money makes our world go round. Right now, it is fueling climate change, and doing little to tackle other systemic issues such as human rights abuses and biodiveristy loss. But it has the power to transform society for the better.

That’s why, in 2020, we analysed the responsible investment practices of the world’s largest 75 asset managers across four topics: responsible investment governance, climate change, human and labour rights and biodiversity.

Not a single asset manager achieved a AAA or AA rating by demonstrating leading practice across all assessment topics. This is concerning given that the asset managers we examined manage more money than the GDP of the US, China and the European Union combined.

There were pockets of leading practice, however.

On the majority of questions we asked, there was at least one asset manager that achieved full marks.

This shows that achieving an AA or AAA rating was entirely possible.

But for this to happen, this leading practice needs to shift from being largely scattered throughout the industry, to being systematically embedded. The much-parroted mantra that “ESG is in our DNA” needs to become a reality.

Today we have published a leading practice guide for asset manager responsible investment to help this become a reality.

What good looks like

The guide brings together a comprehensive set of case studies that reflect the current state of leading practice by mainstream asset managers on responsible investment topics.

To do this we need to look to a variety of asset managers.

Take for example, voting policy commitments.

Here, Aviva Investors is showing leading practice by committing to vote against directors of CA100+ companies yet to set a science-based target.

RBC Global Asset Management, meanwhile, generally supports proposals asking companies to abstain from operating in, or using products extracted from, environmentally sensitive areas.

On human rights, NN Investment Partners will vote against directors at companies at risk of violating the United Nations Global Compact.

But not a single asset manager is yet to implement the breadth of leading practice needed.

To support them to do this, we’re also providing a checklist of current leading practice, to demonstrate what good looks like.

For example, we found that leading practice on voting transparency includes:

  • Voting decisions are published as soon as possible after meetings in an online, searchable, user-friendly format
  • Rationales for voting decisions on controversial and key ESG-related resolutions are publicly available
  • Voting intentions for key ESG-related resolutions are pre-declared ahead of the meeting

We hope that this guide will provide clear and achievable examples of leading practice, as well as decision-useful guidance, for asset managers looking to align their responsible investment approaches with leading practice.

Asset owner clients and their advisers can also use the contents of the guide, including the checklist, to help drive stronger responsible investment standards with the asset managers they engage with.

What good needs to look like

One thing sticks out from our research: Leading practice on responsible investment remains far from where it needs to be to meet the multiple systemic challenges facing society.

While worthy of celebration, the leading practice case studies showcased in our report still fall short of the level of action required in the context of catastrophic climate change, ecosystem collapse, and deepening social inequality.

A ‘gold standard’ for responsible investment requires investors to take account of the adverse impacts of their investments on people and planet. Asset managers must leverage their scale and influence to mitigate or reverse these impacts.

A call to action

After decades of investing trillions upon trillions with little or no regard for the adverse impact on people and planet, now is the time for investors to step up.

Recent years have seen a surge in interest in “sustainable” or “ESG” investment aimed at meeting investors’ needs beyond the bottom line.

With less than ten years left to meet the Sustainable Development Goals (SDGs), there is a clear opportunity for asset managers to capitalise on this booming interest and use their assets under management as a force for good.

To this end, we have included next steps throughout the guide.

These are intended to encourage asset managers to continue to increase ambition and to move towards a ‘gold standard’ for responsible investment that is required to leverage the transformative power of finance towards a more sustainable world.

Take again voting transparency. Here we encourage asset managers to take the next steps of publishing rationales for voting decisions on all shareholder proposals. We also call on them to systematically pre-declare their voting intentions for all resolutions.

The HSBC and Tesco resolutions will provide a litmus test for which asset managers are willing to take next steps towards authentic responsible investment. We’ll be watching to see which asset managers pre-declare their voting intentions for these landmark resolutions.

On your marks...

Read our leading practice guide here >>

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