The majority of the world’s largest asset managers that together control over $77 trillion of assets are not investing responsibly and are failing to protect the climate, biodiversity, and people, a report by the responsible investment NGO ShareAction has found.
The report contended that although many asset managers are keen to promote their responsibly investment credentials, two-thirds of the 77 major asset managers analysed received a CCC rating or worse, illustrating that words often don’t match actions.
The four biggest asset managers in the world – Blackrock, Vanguard, Fidelity Investments, and State Street Global Advisors – all fell in the lowest categories of rating, suggesting that those who wield the most influence are also the least responsible.
“A majority of the world’s largest asset managers are failing to meet even basic criteria, let alone take the steps needed to help protect people and planet for generations to come,” said Claudia Gray, head of financial sector research at ShareAction.
“The impact of the decisions these asset managers make cannot be understated. As managers of tens of trillions of dollars and investors in the biggest companies from many industries, their decisions have a vast impact all over the world,” she added, pointing out that “there remains a lack of ambition to drive real-world improvements”.
The report based its findings on a survey of 107 questions to asset managers spread across 16 countries on topics covering stewardship, governance, climate, biodiversity, and social issues.
Asset managers in Europe were way ahead of rivals in US and Asia Pacific, the report found, with all the top ten from the EU or UK and more than half of non-European managers receiving a D or E grade.
This could be because of the impact of the European regulatory environment, the report noted.
Even the best performing asset managers, however, failed to adequately factor in biodiversity, with the protection of important habitats such as forests, rivers, and oceans put on the backburner.
STRONG IMPROVEMENT
However, a number of asset managers have improved significantly since the last report in 2020. For example, Santander Asset Management and JP Morgan Asset Management improved their rating, thanks to adopting a framework for positive climate-related investment.
Furthermore, the proportion of managers graded D or E, which indicates a very poor performance, has fallen to 35% in 2023 from 51% in 2020.
Only four managers received an AA or A grade for their approach to responsible investment: Robeco, BNP Paribas, Aviva, and Legal & General.
The report pointed to Legal & General Investment Management as an example of a passive investment fund with a positive rating in responsible investment and proof to other large passive funds that it is possible to invest responsibly and be passively managed.
Out of the five themes that were taken into consideration, stewardship – whereby asset managers introduce governance mechanisms to ensure oversight of responsible investment – was the one that scored the highest across the board.
Many asset managers also recognised the need to act on climate, with 22% of companies having dedicated climate-related investment policies and only 10% reporting that climate was only a consideration for funds with an Environmental Social Governance (ESG) label.
Only slightly more than half of surveyed asset managers in the report have a public net-zero target for 2050 and less than a quarter have a published climate transition plan.
Biodiversity drew the worst scores, with a mere 10% of asset managers having a dedicated biodiversity policy covering all portfolios under management. A quarter of asset managers said that biodiversity is only a matter to consider for ESG funds.
The biodiversity commitments that were most subscribed to is the No Deforestation, No Peat, and No Exploitation commitment, made by 14% of asset managers.
A large chunk of asset managers, 40%, do not look into whether the companies they invest in operate in areas of global biodiversity importance, while 20% do look at this but do not have any asset manager-wide restrictions.
The report also included recommendations on how to improve rankings and policies for asset owners and asset managers, like including better monitoring of real-world impacts of investment, strengthening policies, focusing on directing capital to funds that align with the goals of responsible investment.
By Rebecca Gualandi – rebecca@carbon-pulse.com
