Fund Solutions

Largest Asset Managers Failing on Climate, Biodiversity and People 

Biodiversity “blind spot” a key issue due to lack of targets from all asset managers surveyed in global ESG performance report. 

Asset managers are doing “nowhere near enough” to address the “most dangerous human and natural crises of our time”, according to a new report by non-profit ShareAction.  

The analysis is accompanied by recommendations for asset owners to hold suppliers to account as they have the “most to lose from inaction”. 

ShareAction’s ‘Point of No Returns’ report ranks 77 major asset managers, who control a combined total of US$77 trillion in AuM, based on their responsible investment performance across five areas: governance, stewardship, climate, biodiversity, and social issues. 

The worst performers in ShareAction’s survey manage a “disproportionately large” volume of assets, including four of the world’s five largest asset managers. 

In particular, biodiversity proved to be a “blind spot” in the performance of asset managers, Abhijay Sood, Financial Sector Research Manager at ShareAction, told ESG Investor. 

“Biodiversity was the weakest area in the survey,” he said.  

Point of no return 

ShareAction’s report found that the vast majority of asset managers had “consistently failed” to invest in a way that will protect climate and people, in addition to biodiversity.  

Only four of the 77 surveyed received an AA or A grade for their approach to responsible investment, with 35% receiving a D or E grade. Only a small number of managers were found to have performed “consistently well” across all responsible investment themes. 

The report also found that some managers have shown “sharp changes” in performance since 2020, with European asset managers continuing to lead on responsible investment overall compared to their North American and Asia Pacific counterparts. 

Dutch firm Robeco led the rankings and were the only firm to be given an AA ranking. Their place in the rankings was unchanged from 2020, as was BNP Paribas Asset Management, which was placed second. The only two other A-rated asset managers were Aviva Investors and Legal & General Investment Management, in third and fourth respectively.  

The biggest climbers were Sweden’s SEB Investment management, which climbed 51 places to ninth and JP Morgan Asset Management, placed 13th following a 58-place jump. The asset manager that fell furthest was Allianz Global Investors, plummeting 37 places to 55 and being the only firm to drop by over 30 places.  

“Our ambition has moved forward over the last two or three years,” added Sood. “We need the expectations to continue to evolve as the crises we face get more urgent [but] some haven’t kept up with the pace of change.. He said the adoption of responsible investment frameworks by more management played a role in these position shifts in the rankings. 

Although no firm received an AAA score overall, Sood said that, for 104 of 107 questions in the survey, at least one manager received full marks.  

This is a “good news story for us, because it proves that change is possible”, as well as showing change can be measured across regions under the same criteria, he said. 

ShareAction sent questionnaires to 77 of the “most influential” asset management firms worldwide across 16 countries, based on their AuM according to IPE’s 2021 Top 500 Asset Managers List. It sent questionnaires pre-filled with publicly available information to the selected asset managers and 64 out of 77 responded directly to verify and supplement answers. The 13 which did not respond had their information completed by ShareAction based on publicly available information. 

Asset owner recommendations  

Due to the “wide-reaching and systemic nature” of ESG risks, it is not possible for asset owners to avoid them through diversification or divestment, leading them to emphasise using their influence to hold managers to account on these risks.  

ShareAction recommends that asset owners strengthen due diligence during manager selection through review of responsible investment performance and real-world impact, embedding “clear and specific” expectations on the integration and reporting of climate, biodiversity and social issues into investment management agreements.  

It also suggests requiring regular reporting by managers on the management of responsible investment issues at all stages of the investment process and terminating relationships when managers “do not live up to set expectations”.  

“A lot of asset owners will own a stake in the asset managers themselves,” said Sood. “We would like them to use the shareholder engagement levers that one would pull if one were trying to get a company to change its behaviour, such as filing resolutions and having direct meetings.” 

Biodiversity blind spot 

“There was only one question that that no one was able to answer, which was around having a biodiversity target,” said Sood. None of the 77 asset managers surveyed had yet set a “clear biodiversity-related investment target”.  

The importance of businesses and investors addressing biodiversity loss has increased in recent years, and was further pushed up the policy agenda in December by agreement on the Global Biodiversity Framework at COP15.  

Biodiversity was a key theme noted in Rockefeller AM’s 2022 Sustainable Investing Annual report, which said it had “witnessed a notable shift in investor focus toward biodiversity” and flagged an Alliance Bernstein survey that cited biodiversity as the “top ESG thematic topic in the year ahead”. 

Federated Hermes’ stewardship services arm EOS noted that it will look to include the protection and restoration of biodiversity in its 2023-25 engagement plan. Its ambition is to have a “net-positive impact on biodiversity, and the long-term rehabilitation of landforms, such as tropical rainforests, oceans, [and] sustainable food systems” in its long-term corporate engagement outcomes. 

However, despite several developments set to accelerate action on biodiversity, only 18% of investors said they will prioritise engagement on the issue in 2023, according to EY’s 2023 proxy season preview.  

Sood said the lack of target setting on biodiversity was “very surprising”, and although managers typically have climate targets in place they were still failing in address the “other half the problem in an interconnected crisis”. 

“Most managers do not have any restrictions in place for key biodiversity areas, and even if they are monitoring, the vast majority then don’t do anything else,” he added. “It’s staggering, completely staggering.” 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

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