Stockholm (NordSIP) – Is the world of ESG becoming too complex to manage? Index specialist Mellon Investments has just been readmitted to the Climate Action 100+ (CA100+) initiative after being delisted back in October 2022.
Representatives of parent company BNY Mellon explained to NordSIP that the sequence of events began with a back-office oversight at Mellon Investments towards the end of 2021, which meant CA100+ reporting deadlines were missed. Having now provided the necessary information to CA100+ the US subsidiary has been reinstated. Nevertheless, the incident came to light through press reports that were shared on social media, highlighting the reputational risk that can arise when multinational asset management firms get involved in ESG initiatives on multiple fronts.
The growing administrative burden of global initiatives
NordSIP has identified accountability as a key theme for 2023, with the UN-sponsored High-Level Expert Group (HLEG) on the Net-Zero Emissions Commitments of Non-State Entities among various initiatives seeking to clear the muddy waters of sustainability. The incident involving Mellon Investments and CA100+ does prompt various questions from the perspective of both investor signatories and the initiatives’ administrative organisations:
- If a major subsidiary of a USD 2.5 trillion asset management group can get it wrong, is there a danger that investors are signing up to too many separate initiatives and spreading themselves too thin?
- Can relatively smaller asset managers credibly manage the workload associated with these active engagement-related commitments?
- Do the non-profit organisations that administer these global initiatives have the resources to properly hold all of their members accountable for their level of action as signatories?
CA100+ has over 700 member investors with almost USD 70 trillion worth of assets under management. New signatories are asked to specify which of the focus companies they plan to target, and whether this will be in a leading or collaborative capacity. There are 166 focus companies, hence the “+” in the initiative’s name. CA100+ requires its members to focus on three main areas of engagement: governance, GHG emissions reductions and corporate climate disclosure.
Is thematic specialisation the answer?
Some large asset owners have decided to focus on a small number of sustainability themes rather than sign up to all available market initiatives. This means that the available staff, many of whom will have other responsibilities outside of sustainability, can make more effective use of their allocated time. This approach may offer up fewer ESG credentials for marketing purposes, but can ultimately lead to greater depth of involvement and thus more concrete results to report to stakeholders. A narrower focus may also reduce the reputational risk from failing to meet the requirements of a particular idustry initiative.
NordSIP approached CA100+ for comment on the initiative’s accountability and delisting process, but the request was declined. The success of initiatives like CA100+ could be a vital part of global efforts to transition towards a low-carbon economy and help mitigate the worst effects of climate change. The combined power of USD 70 trillion worth of investments should be enough to drive positive momentum, but it remains to be seen whether current practices and structures are up to the task.
