Did Asset Managers Reverse their Climate Action Efforts?

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    Stockholm (NordSIP) – While the signing of the 2015 Paris Agreement triggered a flood of climate commitments, the last years have seen a rise in concern for greenwashing. Now, more and more evidence seems to be pilling up in support of this depressing hypothesis.

    According to FinanceMap’s 2023 Asset Managers and Climate Change assessment a majority of the largest asset managers have not made significant progress on climate goals since 2021. On the contrary, support for climate action appears to have fallen, despite an increase in net-zero commitments.

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    The report focuses on 45 of the world’s largest asset managers and was able to analyze US$16.4 trillion of the asset managers’ equity fund portfolios. Of the portfolios assessed, 95% are misaligned with the goals of the Paris Agreement. Indeed, the asset managers collectively hold 2.8 times more equity value in fossil fuel production companies (US$880 billion) than in green investments (US$309 billion) in the assessed sample. Geographically, much of the blame is assigned to US and Japanese AMs, while their European counterparts are praised.

    The results of this report appear to be consistent with the research of  Philipp Krueger, Professor of Responsible Finance at the University of Geneva (GSEM, GFRI) and Senior Chair at the Swiss Finance Institute

    A Reversed Trend

    The shows that support for climate-ambitious resolutions rose until 2021. In 2019 the average asset manager supported 35% of climate-relevant resolutions, and 61% in 2021. However, by 2022 the trend reversed as average asset manager support fell to just 50% of climate-relevant resolutions.

    Moreover, the portion of asset managers carrying out effective stewardship practices relative to best practice has decreased since 2021, as the share of managers “demonstrating ambitious, effective, and transparent climate stewardship practices” falling from 33% in 2021 to 18% in 2023.

    The report argues that the world’s largest asset managers are not leveraging their influence to drive ambitious sustainable finance policy. FinanceMap also finds issue with industry associations representing the asset management sector continue to strategically oppose ambitious sustainable finance policy globally, including the Investment Company Institute (ICI) and Securities Industry and Financial Markets Association (SIFMA), in the US, and the European Fund and Asset Management Association (EFAMA) in the EU. Of the 45 asset managers assessed, 86% are members of at least one of these industry groups.

    Stagnation from USA and Japan

    Large US and Japanese asset managers, who continue to demonstrate below average alignment scores. Particularly negative equity fund portfolios include Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Daiwa Securities, and BNY Mellon. The assessed equity funds for Goldman Sachs and State Street Corporation are the most exposed to the fossil fuel production value chain, both with 2.2 times higher exposure to the sector than the average asset manager.

    FinanceMap notes that the decreased enthusiasm of US AMs “coincides with the recent ‘anti-ESG’ trend in the country, with some state legislators seeking to limit investors’ use of ESG factors and the phase-out of fossil fuel investments.”

    Particularly, US-based asset managers displayed a trend of voting against a large portion of climate-related resolutions in 2022, with the average US manager supporting just 36% of climate resolutions, compared to 50% in 2021. FinanceMap also singles out BlackRock, Vanguard, and J.P. Morgan Asset Management as examples of using PR that emphasises their green credentials while failing to support inclusion of scope 3 emissions as part of the US SEC climate disclosure rule.

    All of the big four US asset managers BlackRock, Vanguard, Fidelity Investments, and State Street Global Advisors received a FinanceMap Stewardship Score of C+ or lower, indicating “a lack of effective climate stewardship processes and use of shareholder authority to engage companies to transition.”

    Hope From Europe

    In contrast, several small, European asset managers’ portfolios appear to outperform their peers, with Natixis and Schroders receiving positive Portfolio Paris Alignment scores, and Schroders and BNP Paribas Asset Management both having 2.7 times higher exposure to green investments than the average asset manager.

    The most robust climate stewardship continues to come from European managers Legal & General Investment Management, UBS Asset Management, and BNP Paribas Asset Management, as well as Federated Hermes. All show clear evidence of engagement with companies on the transition of business models and are active members of Climate Action 100+ (CA100+).

    Bridging the Gap

    To bridge this gap in the immediate term, the report argues that firms can disclose and review their industry association memberships to ensure these are aligned with their climate goals, and increase support for ambitious sustainable finance policy.

    Additionally, to ensure the credibility of its climate commitments, the asset management sector will need to intensify its engagement with climate-critical sectors and companies, as well as implement robust shareholder voting processes, with the ultimate aim of driving the real-economy transition.


    Image courtesy of Jim Wilson on Unsplash
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