Despite strong progress by asset managers on stewardship since 2020, voting data disclosure and new policies “are not being matched by real-world action”, reports ShareAction.
Asset managers need to build on recent improvements to their stewardship and governance standards to meaningfully address systemic risks such as climate change, says a new analysis.
Three times as many asset managers are now holding their board responsible for ESG-related concerns compared to two years ago, according to a survey of 77 of the world’s largest asset managers by UK-based responsible investment non-profit ShareAction.
But far fewer (13%) are disclosing the impacts of all their portfolios on people and planet, with around half reporting a commitment to divest or reduce holdings or refuse to purchase new debt from “problematic companies”.
“The world’s largest asset managers are stunting their own ambition on the matter of responsible investment by not committing to the most impactful governance and stewardship structures,” said Claudia Gray, Head of Financial Sector Research at ShareAction.
“Our research has found leadership failing to strategically play all the cards they have in hand to address global crises.”
The report is part of ShareAction’s biennial Point of No Returns research project, which benchmarks the sustainability performance of large asset managers globally, collectively managing US$77 trillion.
Managers were asked to verify and augment a partially pre-filled questionnaire, which was completed using publicly available data where firms declined to participate.
Gaps in key areas
On governance, ShareAction noted that many asset managers had implemented policies and structures to support responsible investment. Two third of firms reported their executive teams had oversight of responsible investment policies. Training and remuneration are increasingly orientated toward responsible investment, but this was less common at the most senior level.
Regarding stewardship, ShareAction found high levels of transparency across voting and engagement, but noted gaps in key areas. Eighty-eight percent of asset managers disclosed their votes publicly (up from 55% in 2020), but 42% did not publish the rationales for votes against shareholder resolutions and just three pre-declared voting intentions, regarded by ShareAction as “essential to spur on dialogue and progress on environmental or social themes”.
Engagement activity with equity holdings on climate-related topics appears well advanced among leading asset managers, but is more patchy elsewhere. Only 40% of surveyed asset managers’ engagement policies covered all assets under management, with around half (49%) currently including biodiversity.
While 83% of managers outlined escalation in their engagement policies, further details on how these were implemented were scarce, with around half of firms failing to include consequences or reference specific triggers for action. Less than a third of asset managers provided a full list of firms engaged with.
Rigour and regularity
To encourage further improvements on governance and stewardship standards, ShareAction said asset owners should increase the rigour and regularity of their due diligence processes, both during selection and ongoing performance monitoring.
Asset owners should demand managers provide regular updates on engagement priorities, details of progress, and quantitative assessment of actions of outcomes.
“Clear and specific” expectations on the integration and reporting of climate change, biodiversity and social issues should be included in investment management agreements, said ShareAction.
ShareAction called on regulators to develop and enforce mandatory stewardship rules for asset managers and owners, noting the positive contribution to performance and disclosure made by the UK Stewardship Code 2020 and Europe’s Sustainable Finance Disclosure Regulation.
A recent discussion paper from the UK’s Financial Conduct Authority flagged the possibility of regulatory changes to encourage effective stewardship, particularly in relation to governance and resourcing of stewardship by asset managers and owners.
For both governance and stewardship, the top 10 performing asset managers came from Europe or the UK.
Policy makers should empower regulators to penalise poor stewardship performance, ShareAction said, as well as issuing timelines and guidelines for the introduction of mandatory voting disclosure by institutional investors.
