Research highlights the role of industry associations in attempting to water down sustainable finance policies.
Asset owners have developed a “blind spot” for asset managers’ lobbying activities surrounding sustainable finance policy, but are increasingly focused on improving alignment with climate goals.
Recent FinanceMap analysis of 45 of the world’s largest asset managers, collectively managing US$72 trillion, found many were not strong and consistent supporters of sustainable finance policies.
The vast majority (86%) belong to at least one industry association that has strategically advocated to weaken key sustainable finance policies, according to the report. None of the world’s largest ten asset managers scored higher than a ‘D’ on policy engagement.
“Asset managers are not supporting the level of sustainable finance policy ambition they claim is important in their top line messaging,” Daan Van Acker, Programme Manager at think tank InfluenceMap’s FinanceMap Programme, told ESG Investor.
“In some cases, they are even being oppositional to emerging policy, either directly or through their industry associations.”
Patrick Peura, Engagement Track Co-Lead for the Net Zero Asset Owner Alliance (NZAOA), said it is “a major problem” for any company to say it supports net zero emissions while simultaneously lobbying against it, directly or indirectly.
The FinanceMap report assessed asset managers across three criteria: equity portfolio analysis, stewardship of investee companies, and sustainable finance policy engagement.
“We do see that there is a blind spot when it comes to asset managers’ lobbying activities around sustainable finance policies,” said Van Acker.
Major associations in the US, such as the Investment Company Institute (ICI), and in Europe, such as EFAMA, averaged a ‘D-’ total score on their policy engagements, which the report said is significantly lower than that of many asset managers and “points towards broad opposition to policies aimed at aligning financial flows with the Paris Agreement”.
FinanceMap said that ICI has been actively and negatively engaged with the US Securities and Exchange Commission’s (SEC) efforts to give investors more information about funds’ and advisers’ incorporation of ESG factors and to update the ‘Names Rule’ to better incorporate ESG-related labels.
ICI declined to comment.
Further, no US-based asset manager stood out as a positive advocate on sustainable finance policy, the report said, with US managers instead focused on “limited but positive engagement of general climate ambitions”, while outlining objections to specific policies.
In Europe, EFAMA has been highly engaged with EU policies, with the report stating that the association argued for voluntary disclosure requirements and weaker thresholds to define sustainable investments in the EU taxonomy.
EFAMA did not respond to a request for comment.
“The main reason this is an issue is because many asset managers don’t directly engage with policy in the same way they do with investee companies, instead relying on their industry associations,” said Van Acker.
“We also see a number of industry associations taking the lowest common denominator position of their members, resulting in potentially more ambitious managers being underrepresented.
“Asset owners need to be challenging managers on this, ensuring that there is alignment between both direct and indirect lobbying with top line climate ambitions,” he said.
“Progress is needed”
Peura, also ESG Engagement Manager at Allianz, said many managers understood the need to align lobbying with their commitments and policies supporting portfolio decarbonisation.
“We have seen good uptake of this principle by asset managers generally, but the FinanceMap findings clearly show progress is needed in managers actually walking the talk,” said Peura, who is also ESG Engagement Manager at Allianz.
The NZAOA’s April paper on asset management climate policy engagement said that managers’ stewardship of portfolio companies should be consistent with their stated climate goals and responsible climate lobbying.
“If we want to meet our real-world decarbonisation goals, it is imperative that policy action, as influenced by corporate lobbying and engagement, is supported by constructive corporate lobbyists,” said Peura.
Olga Hancock, Head of Responsible Investment for the UK’s Church Commissioners, said: “We encourage asset managers to enhance their policy advocacy on this area and align with the Paris Agreement.”
FinanceMap’s findings were “slightly disturbing”, said Jacqueline Jackson, Head of Responsible Investment at London CIV, a UK local government pension scheme, as the report “covers a lot of managers that we have in our own investment portfolio”.
Jackson told ESG Investor that she would use the report to benchmark managers to “drill down into the specific funds we hold with them”, comparing the findings against each manager’s overall performance.
“While we [asset owners] have tens of thousands of investee companies, we work with [a handful] of asset managers, so it’s much easier for us to check their behaviour in terms of transparency and disclosure, governance, engagement, and their actual carbon footprint,” she said.
Misaligned with Paris
The FinanceMap report found that 95% of managers’ portfolios are currently misaligned with the goals of the Paris Agreement and the International Energy Agency’s (IEA) Net Zero by 2050 scenario, with little progress made over the last two years.
Analysing US$16.4 trillion of the assessed asset managers’ equity fund portfolios, the report found that managers hold 2.8 times more equity value in fossil fuel production companies (US$880 billion) than in green investments (US$309 billion). Green investments were calculated according to the criteria of the EU taxonomy.
Of the sample, only Schroders and Natixis currently manage their portfolios in line with the goals of the Paris Agreement.
The portfolios of Goldman Sachs, Vanguard, BlackRock and State Street were found to be “significantly misaligned” with the Paris Agreement. Japan’s Mitsubishi UFJ’s portfolio was the most misaligned globally.
European asset managers typically outperformed the sample, scoring ‘B-’ or better, including Allianz Global Investors, UBS and BNP Paribas Asset Management. Schroders and BNP Paribas AM have a 2.7 times higher exposure to green investments than the average asset manager, the report noted, adding that Goldman Sachs and State Street are the most exposed to the fossil fuel production value chain, at 2.2 times compared to the average asset manager in the sample.
The portion of asset managers carrying out effective stewardship practices relative to best practice has also decreased since 2021, the report said. The percentage of managers in the ‘A’ band has fallen from 33% in 2021 to 18% in 2023.
“Without asset managers being on board and helping to support the climate transition, there is very little hope of greening the world,” said Jackson from London CIV.
“If asset managers are not cognisant of that, and recognising that they not only need to influence, but prepare and be more climate resilient, then clearly there’s something wrong within their climate strategy.”