Asset managers worth $36trn neglecting harmful impacts of their investments - report

Written by Adam Cadle

10/03/2020

Thirty-eight out of 75 of the world’s largest asset managers are stalling on taking action on environmental, social and governance issues, according to latest research published by ShareAction.

Worth a combined $36trn, the asset managers are “neglecting the ecological and social harms of their investments”, ShareAction stated. Furthermore, the report said these firms have weak or non-existent policy commitments and fail to account for their real-world impacts across their mainstream assets. “They also often lack appropriate engagement and escalation processes on climate change, human rights, and biodiversity.”

The world’s six largest asset managers, BlackRock, State Street, Vanguard, Fidelity Investments, Capital Group and JP Morgan Asset Management (JPMAM) with almost $20trn under management, are among the worst performers, the report added.

“They have a very limited approach to managing ESG risks and opportunities, exposing millions of savers worldwide to potential financial losses in the long term.”

Results show that some asset managers – such as Robeco (which ranks first), BNP Paribas Asset Management, LGIM, APG and Aviva – are showing real leadership and are a positive exception. However, none of the assessed managers demonstrate a best practice approach across all of the responsible investment themes and, therefore, none qualified for AAA or AA rating, the top two scores.

The analysis also reveals big differences between regional markets. The majority of European asset managers generally outpace their peers in other regions, with most of the US-based investors far behind the curve. Within Europe, the Netherlands shows particularly strong performance, leading against France, with the UK behind its French peers. The five largest Japanese asset managers included in the ranking generally perform better than their US counterparts and outperform their peers in Asia Pacific, showing that Japan has strong potential for becoming a progressive force for responsible investment in the region.

Data was taken in October 2019 and ShareAction is welcoming any progress asset managers have made since then.

Felix Nagrawala, ShareAction senior analyst, said: “ShareAction’s most ambitious study yet reveals who is really walking the talk on environmental and social issues, and who is dragging their feet in the asset management space. While many in the industry are eager to promote their ESG credentials, our analysis clearly indicates that few of the world’s largest asset managers can lay claim to having a truly sustainable approach across all their investments.

“Because the power of the global asset management sector relies on the money put into the system by millions of savers worldwide, the findings of our study are just as salient for ordinary people as they are for the industry. Through the decisions they make every day, asset managers shape the world around us, and the world into which we retire, yet they are failing to drive the change we urgently need. It is imperative that they start to account for the real-world impacts of their investments and step up to meet the challenges of the social and environmental crises we are now facing.”

Responding to the report, JPMAM provided an outline of its range of initiatives designed to reinforce its focus on advancing sustainable solutions for clients.

1) JPMAM is enhancing its investment-led, research driven stewardship process to increase its engagement with companies around five specific priorities, including climate change, bringing greater momentum to efforts already underway.
2) JPMAM will develop a proprietary environmental, social and governance (ESG) scoring framework. It will leverage in-house research on the materiality of different ESG factors and utilise data science and artificial intelligence, based on the firm’s conviction that harnessing data will significantly advance sustainable investing.
3) JPMAM has become a signatory to Climate Action 100+, reflecting the firm’s increasing collaboration with companies, investors and regulators on the critical issue of climate risk.

JPMAM said it will build on the foundation of our longstanding corporate engagement practices in defining and implementing its investment stewardship philosophy, tapping into its investors and using ESG data and research capabilities, to strategically focus on engaging companies where JPMAM believes ESG considerations can play a critical role in creating value for its clients.

In addition, JPMAM said it is developing a proprietary ESG scoring system framework utilising multiple sources of ESG data based on a common set of financially material ESG indicators designed by its investment teams. The goal of the proprietary scoring system is to help JPMAM’s investment professionals better identify forward looking ESG risks and opportunities, as well as to construct portfolios with an optimised ESG efficient frontier with the goal to deliver enhanced risk-adjusted return.

A spokesperson for Vanguard said: “As a steward of lifetime savings for more than 30 million investors, Vanguard has long considered managing ESG issues to be an important element of responsible investment and portfolio management practices. Vanguard approaches ESG through our evolving offer of investment products, our integration of ESG considerations throughout our investment processes and the investment stewardship activities across our active and index fund range.

“Our investment stewardship team is taking action to address climate change risk as we believe it presents a meaningful risk for investors. We do this through our company engagements and industry advocacy efforts with organizations and initiatives such as the Sustainability Accounting Standards Board, Task Force on Climate-related Financial Disclosures and UN PRI, among others. Proxy voting remains an important component of Vanguard’s stewardship programme.

“We are also encouraged by the positive dialogue we are having with companies who are making concerted efforts to appropriately oversee climate matters as they would other material issues. Vanguard continues to call on companies to be transparent about climate-related matters and disclose them to investors.

“As we look ahead, sustainability and climate change risk will be an important area of focus as we continue to advocate for the long-term interests of our investors.”

A Capital Group spokesperson said: "ESG issues are a strategic focus for us. As a fiduciary to clients and shareowner of companies around the world, we take our role seriously, and are investing significant resources to continuously improve our approach. These issues are often complex and nuanced, and don’t typically lend themselves to simple exclusions or “yes/no” votes. As a bottom-up investor, we use our in-house research to identify companies to invest in, and engage with those companies regularly to assess their risks, opportunities, and progress."

At the time of going to press, the other asset managers had not yet responded to the report.

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