Stockholm (NordSIP) – According to the Asset Owners’ Disclosure Project’s (AODP) latest report on the responsible investment credentials of asset managers, much remains to be done. The report found that 51% of assessed asset managers have a weak approach to responsible investment, while an additional 16% have a limited approach. Moreover, not a single one of the assessed asset managers demonstrated sufficient leadership across its entire responsible investment approach to warrant awarding the ratings of “AAA” or “AA”.
The report surveyed the 75 largest global asset managers, with US€50.6 trillion in AUM, and ranked them on the quality of their responsible investment approaches. All asset managers were PRI members. The report assessed them based on the following four dimensions: responsible investment governance, climate change, human rights and biodiversity. Given these assessments, investors are awarded ratings from “AAA” to “E”.
Most of the surveyed asset managers are registered in Europe and the Americas (86.6%), with only nine asset managers from Asia covered and one from Africa (Investec Asset Management). The ranking distribution also varies across geographies. While most regions perform rather poorly, in Europe as much as 52.5% of the funds are actually ranked quite well.
Although asset managers have made the most progress on the topic of climate change, many are still not taking the necessary steps in appropriately managing climate risks, according to the report.
The world’s six largest asset managers, with an aggregate US$ 20 trillion of AUM, equivalent to 35.5% of all AUM surveyed, are all ranked in the D and E categories.
An argument often advanced to justify poor ESG ratings among passive investors is that the broad and automated approach of these type of strategies does not lend itself to the kind of discretionary choices underlying responsible investments. However, being a passive investor is not a barrier to having a leading responsible investment approach, as shown by the example of Legal & General Investment Management (L&G IM), the third top responsible passive asset manager with US$1.329 trillion in AUM.
The other top 5 asset managers, all of whom were ranked “A”, include Robeco, BNP Paribas Asset Management, APG Asset Management and Aviva Investors represent US$3.251 trillion in AUM, equivalent to 5.8% of all AUM surveyed by ShareAction. Only Nordea Investment Management (“BBB”) and SEB (“D”) made the list among Scandinavian asset managers, ranking 12 and 60 respectively.
The findings, in terms of oversight and governance, were also not particularly encouraging. Only approximately 20% of assessed asset managers have board-level accountability for responsible investment. Moreover, 93% of assessed asset managers have no financial incentives relating to responsible investment. Of those that do, most came in the top five of the ranking.
“While the majority of asset managers offer a selection of sustainable financial products which integrate some climate and human rights considerations, this is not indicative of their overall commitment to responsible investment,” states the report. Although 89% of the assessed asset managers offer funds labelled as “sustainable”, “ESG”, or similar, to their clients, no significant correlation has been found between asset managers’ overall responsible investment performance and the breadth of their ESG product suite.
AODP is a ShareAction project. It assesses and engages the world’s largest institutional investors on their approach to responsible investment. Its mission is to leverage the global financial system to tackle critical global issues, with a focus on climate change, human rights, and biodiversity. ShareAction is a non-profit working to build a global investment sector which is responsible for its impacts on people and planet, by helping to create an investment system in which long-term thinking is recognised as the best way to guarantee healthy returns.
The full report is available here.