Global asset managers are largely failing to align portfolios to net-zero pathways and are also mostly ignoring biodiversity risks, according to a report published Sunday that relied on a comprehensive sample of global data.

The report by responsible investment charity ShareAction looked at data collected last year on climate and biodiversity policies and practices from 77 of the world’s largest asset managers – who collectively hold over $77 trillion in assets under management.

The authors found that even though almost all asset managers studied have long-term net zero targets, there is a general lack of ambition towards climate change, with most asset managers having inadequate climate goals, and most actively investing in companies that are expanding oil and gas production.

Only 10 asset managers – all of which are European – have committed to restricting investment to the most harmful of fossil fuels across their funds, including coal and unconventional oil and gas.

Almost three-quarters of asset managers had made no commitments on deforestation, and none had made commitments related to other types of habitat conservation. Almost three-quarters imposed no restriction on activities in areas with important biodiversity.

INTERIM TARGETS

Interim targets are expected to demonstrate active progress towards net zero emissions commitments and required under credibility assessment frameworks such as the Science-Based Target initiative.

Sunday’s report found that only 71% of the surveyed asset managers have set interim 2030 targets, and the authors also identified other related shortfalls including 2030 targets leaving out certain assets and covering just 41% of the total amount of assets under management on average.

Only eight asset managers set targets based on absolute carbon emissions reductions, with others using approaches such as intensity-based metrics.

Many interim targets also exclude Scope 3 emissions, the lion’s share of asset managers’ emissions portfolios.

THE GOOD NEWS

According to the study, asset managers reported increasing engagement with companies about their decarbonisation strategies, something often cited as an alternative strategy to disinvesting.

Pressure from investors has been shown to be effective in some cases in changing environmental performance of portfolio companies.

Meanwhile, the majority of asset managers have started to implement best practices on disclosure aligned to the Taskforce on Climate-Related Financial Disclosure (TCFD).

Finally, the subject of biodiversity is rapidly increasing as a priority for engagement, and almost three-quarters of asset managers reported being members of at least one biodiversity-related collaborative initiative.

ADVICE

ShareAction called on asset managers to take climate change and biodiversity loss more seriously by making commitments to protect critical ecosystems, invest in clean energy, bolster net-zero targets, exclude investments in fossil fuel expansion, and demand better climate and biodiversity reporting to guide investment.

Specific advice to asset managers included:

• Increase transparency and disclosure: Investors should encourage companies to be more transparent about their environmental impact and disclose information about their sustainability efforts. This can help investors make more informed decisions and hold companies accountable for their actions.
• Encourage robust targets and goals: Investors should demand companies set clear targets and goals for reducing their emissions and protecting biodiversity, while tracking progress towards these targets over time.
• Engage with policymakers: Both investors and their portfolio companies should engage with policymakers to advocate in favour of policies that promote sustainability and address climate change and biodiversity loss.

By Katherine Monahan – katherine@carbon-pulse.com

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