Point of No Returns
A ranking of 75 of the world’s asset managers approaches to responsible investment
Crises in the natural world have reached a critical level, while global inequality and human rights violations remain widespread and rife. Inaction threatens the very existence of human society. Tackling these challenges requires an overhaul of the global economy. Yet businesses and financial organisations continue to seek short-term returns without accounting for the externalities of their decisions – with devastating long-term impacts on people and the planet.
It is in this context that we examine 75 of the most influential asset managers worldwide on responsible investment governance, climate change, biodiversity and human rights.
The majority of asset managers demonstrate a substandard approach to responsible investment
Despite asset managers often touting their responsible investment credentials, the industry as a whole has a long way to go.
The world’s largest asset managers show particularly poor ESG performance. In fact, all of the world’s six largest managers sit in the D and E rating band. Together they have a combined AUM of over US$20 trillion – representing a third of the total AUM of the managers assessed as part of this report.
There are pockets of leadership. Five asset managers – Robeco, BNP Paribas Asset Management, Legal & General Investment Management, APG, and Aviva – rated A in the 2020 survey. However, with no manager demonstrating best practice across its entire approach, no AA or AAA ratings were awarded.
A clear regional split can be seen in this year’s survey, with European asset managers leading the way on responsible investment. The US and Asia Pacific, meanwhile, lag behind. This is perhaps unsurprising given the strong regulatory signals on sustainable finance at the EU level – such as the EU’s Sustainable Finance Agenda – and the country level – for example Article 173 of the French Energy Transition Law and the Dutch Climate Agreement.
In stark comparison, with strong policy signals from both the Trump administration and the US Securities Exchange Commission that climate change is not a priority, it is also unsurprising that US asset managers are far less progressive on ESG issues.
Transparency on engagement and voting remains limited
Effective stewardship is widely regarded as a driver of performance that can reduce risk and maximise returns, while also enhancing overall market stability. It can also bring positive benefits for society and the environment.
It is vital for asset owners and clients to be able to select asset managers based on clear policies and actions on company engagement and a positive voting record on environmental and social issues. But this is only possible where an asset manager is transparent. Currently, the industry does not provide the levels of transparency needed to be fully held accountable.
Why Voting Matters
In 2019, ShareAction released an assessment of how 57 of the world’s largest asset managers voted on 65 shareholder resolutions linked to climate change, which found major gaps in asset managers’ approaches to environmental issues.
You can view the full report and individual asset managers’ performance here.
As well as engagement activities, it is also vital to understand the outcomes of such engagement. Reporting on this, however, remains in its infancy. Some 60 per cent of those surveyed do not disclose information on outcomes of engagement. The rest do so in an ad-hoc manner.
On top of this, comparable data will be vital for making the right decisions on ESG issues. In an effort to address this challenge the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) has developed a voluntary reporting framework, to prioritise the disclosure of decision-useful, forward-looking information on the financial impacts of climate change.
But, while 73 per cent of asset managers support the TCFD recommendations, just 19 per cent disclose in line with them, and where they do, the reporting is varied in its quality and level of detail.
The majority of asset managers do not have board-level oversight, or financial incentives, for responsible investment
Robust governance is vital for tackling ESG risks, such as climate change, and responsible investment should be seen as a business priority. As a barometer of this, we examined asset managers on whether (1) accountability of responsible investment sits at the highest level – with the board; (2) whether this is backed up by financial incentives; and (3) whether this is supported with comprehensive training.
For asset managers falling behind on these areas, ESG could become an ad-hoc exercise – leaving portfolios vulnerable.
The findings of this report show there is a long way to go for raising the standard of responsible investment in the asset manager community to match the levels of action today’s crises require. While there is some leadership being demonstrated, no single asset manager is showing leading performance across across all areas.
The scale and urgency of the challenge we face demands more. And we encourage asset managers, and their clients, to use this report to benchmark performance and drive improvements.
For more report findings and our full recommendations, download the full report.
Alongside this report we have done a more in-depth look into asset managers’ approaches to the issues of climate change, biodiversity and labour rights, to offer more detailed recommendations on specific actions asset manager can, and should, take. We also produced a leading practice guide to offer asset managers practice advice on improvement across all areas.
Ranking of 75 of the world’s largest asset managers across responsible investment themes
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* Did not disclose – survey filed out based on publicly available data. The asset managers in question were given the opportunity to review the information collected.