Among the world’s 15 largest asset managers, only three companies are making the grade on environmental, social and governance considerations, a report from InfluenceMap shows.
The research concluded that only Allianz, Legal & General and UBS Asset Management are strongly and consistently engaging with the companies they invest in, aligning their business models with Paris targets.
European managers Axa and Crédit Agricole are close behind in performance on climate engagement, and BNY Mellon also scores well through the actions of its London-based subsidiary, Newton, it added.
The 15 managers analysed in the report – which manage portfolios worth $37tn (£28.7tn) of wealth, containing a fifth of the total value of world capital markets – are collectively failing to drive forward the transition needed to support international climate targets, the UK think tank argued.
Asset managers who take their stewardship responsibilities most seriously are likely to be looked on more favourably by pension schemes
Caroline Escott, Pensions and Lifetime Savings Association
InfluenceMap assessed these asset managers’ portfolios by connecting the companies it holds with the physical assets they own, and then comparing this with a target portfolio aligned with the Paris Agreement.
The research also showed that US managers BlackRock, Vanguard, State Street, JPMorgan Chase, Morgan Stanley, Goldman Sachs and TD Bank call on companies to consider climate risks, but do not drive behaviour change around climate models or policy lobbying.
Fidelity and Capital Group also appear to have very limited engagement with companies on climate change.
Thomas O’Neill, research director at InfluenceMap, said: “If global asset managers wish to support the Paris Agreement and remain invested in the automotive, power and fossil fuel industries, then they must engage robustly with companies in these sectors to accelerate their switch to low-carbon technologies and ensure their policy lobbying supports climate targets.”
Smaller managers doing the ‘heavy lifting’
The research also analysed managers’ climate engagement performance through their record of voting on shareholder resolutions designed to support the Paris targets.
BlackRock and Capital Group voted against 90 per cent of resolutions in 2018, while other US asset managers voted against the majority.
The report also highlights five smaller US and UK asset managers “who appear to be doing the ‘heavy lifting’ for the entire industry”.
Trillium Asset Management, Hermes Investment Management, Sarasin & Partners, Walden Asset Management and Zevin Asset Management filed 20 per cent of all climate resolutions in 2018, InfluenceMap stated.
The study, which is the first output from InfluenceMap’s FinanceMap project – aiming to provide a public benchmark on how well the asset management sector is performing on climate change – found that the equity portfolios of the top 15 asset management groups were misaligned with the climate change goals.
The figures showed a deviation of between minus 16 per cent and minus 21 per cent from a portfolio of investments aligned with the Paris target. This implies they are overweight in companies deploying hamrful technologies, and underweight in those deploying green technologies in four key sectors: automotive, oil and gas, electric power and coal production.
Schemes need to ask the right questions
In the UK, new regulations came into force in October requiring trustees to publish their views on financial material ESG considerations, explicitly including climate change, in their statements of investment principles.
Caroline Escott, policy lead for investment and stewardship at the Pensions and Lifetime Savings Association, noted that “asset managers who take their stewardship responsibilities most seriously are likely to be looked on more favourably by pension schemes, who ultimately vote with their feet when selecting asset managers”.
She stressed that there is already a wealth of ESG funds and products in the market, and that the number is only going to increase.
“It’s vital that pension schemes are able to distinguish between managers talking the talk and those just making the right noises,” Ms Escott said.
“A key part of doing so is asking the right questions both during manager selection and in ongoing scrutiny. For example, how many collaborative ESG initiatives have fund managers signed up to, and how many of these does the manager play an organisational role in?
“Also, how many individual company engagements has a manager delivered on climate risk and what proportion of those engagements delivered tangible change?”
Trustees have a role to play
Romi Savova, chief executive of consolidator PensionBee, argued that while consumers are increasingly making their views regarding climate change and other issues known, most “asset managers are still grappling with how to respond to these societal demands and how to publicly demonstrate their engagement with controversial publicly listed companies”.
ESG gauntlet laid down as member demand grows
Asset manager Schroders says trustees do not do enough to communicate their views on sustainability to their managers, as ESG issues rise up the institutional and consumer agenda.
“This is complicated by poor feedback loops: consumers usually do not have direct access to large asset managers – their direct relationship is often with their pension provider,” Ms Savova said.
She noted that pension providers and trustees will therefore have a key role to play in this area, as they will need to respond to consumer and regulatory demands for better engagement on climate change.
“If asset managers refuse to represent the views of beneficial owners, then pension providers may need to vote with their feet. Of course, such responses must be balanced and in line with the pension industry’s objectives to generate a retirement income for savers,” she said.
“We are clearly in a period of transition where transparent asset management and alignment with broad consumer ambitions will ultimately triumph.”
