Managers need to step up their game to address environmental impacts with more transparency.
A new study by investment consultant firm Redington suggests many asset managers are not yet effectively addressing climate risks through their investment decisions, potentially failing to meet the expectations of ESG investors.
More than a third (39%) of asset manager respondents were unable to provide an example of an engagement effort related to climate change, while less than two-thirds (62%) have an ESG engagement policy in place.
Engagement typically involves an initiative from the asset managers to proactively discuss environmental issues with the companies in their portfolio, as well proposals, through regular briefings or votes at annual general meetings.
Even though 76% of managers surveyed said they consider climate-related risks and opportunities, the firm’s analysis found that only 60% could provide an example of when these factors had actually influenced buying or selling decisions.
Redington interviewed a total of 104 managers from across the globe, representing over US$10 trillion in combined assets under management, on a vast spectrum of areas relating to ESG.
Nick Samuels, Head of Manager Research, Redington, believes the discrepancy highlights a significant industry issue which, despite engagement seemingly increasing, is not translating into concrete and consistent portfolio decisions.
“Climate change is a widespread problem, impacting all sectors of the economy. We would expect all our managers, regardless of asset class, to have at least one, if not several, examples of climate change related engagements with their portfolio companies,” Samuels said.
With global momentum around climate change quickly rising, Redington says that all players in the global economy – including investors, asset managers and investment consultants – must be prepared to play their part in the transition to a low carbon economy.
“While the positive momentum is clear, we simply have to raise the bar on climate change. Investors have the power to push for real action from policy makers and businesses to address a whole range of issues that fall under the banner of ESG. As an industry, we have a responsibility to ensure they have the tools and knowledge to properly address the climate related risks that arise in their portfolios,” said Samuels.
“There also needs to be a fundamental shift in conversations to push companies for better transparency on their environmental footprint, which will allow for better quality carbon data and access to other potentially relevant environmental metrics,” he added.
Redington’s research highlighted that only 28% of asset managers surveyed are currently reporting against the Task Force on Climate-related Disclosures (TCFD) guidelines. However, the firm does expect to see significant improvement in the coming months, with half of the managers surveyed currently considering adoption of the TCFD guidelines in their reporting procedures.