Posted inESG

Big asset managers make ESG pledges but fail to deliver

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Despite being among the world’s six largest asset managers, BlackRock, State Street and Vanguard perform among the worst on sustainability risks and impacts, a report has found.

The US asset managers collectively have almost $14trn (€12.3trn) in AUM.

European asset managers, however, are taking the lead, globally, according to a ranking by UK non-profit organisation ShareAction AODP (Asset Owners Disclosure Project).

The top five asset managers are:

  • Robeco – Netherlands
  • BNP Paribas Asset Management – France
  • Legal & General Investment Management – UK
  • APG Asset Management – Netherlands
  • Aviva Investors – UK

The latest AODP ranking features 75 of the most influential asset management companies worldwide, across 17 countries and based on their AUM.

ShareAction explained that the ranking was carried out against the backdrop of businesses having devastating long-term impacts on people and the planet, such as causing climate change and contributing to the loss of biodiversity.

“At the root of many of these problems is short-termism: businesses and financial organisations seek short-term return without accounting, or being made to account, for the externalities of their decisions,” ShareAction stated.

It said that the overall impression from its research is that investments at best ignore key systemic risks and at worst contribute to them.

Findings

ShareAction rates asset managers based on disclosure and management of governance risks, climate change, human rights and biodiversity and impacts of these across their portfolios on a scale from AAA to E.

Asset managers in the bottom two categories of the ranking (D and E) 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, AODP said.

Out of 75 of the world’s largest asset managers, 38 neglect the ecological and social harms of their investments.

AODP said it is concerning that all of the surveyed asset managers are members of the Principles for Responsible Investment and 75% have joined investor initiative Climate Action 100+ (CA100+), but many fail to translate their public commitments into action.

The five largest Japanese asset managers included in the ranking generally perform better than their US counterparts and outperform their peers in Asia Pacific.

All asset managers responded to the survey, with the exception of Bradesco Asset Management, E Fund Management, Fidelity Investments, JP Morgan Asset Management, PGGM and SEB.

Progress needed

Felix Nagrawala, senior investor research analyst at ShareAction, said: “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.

“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.”

Luba Nikulina, Willis Towers Watson’s global head of research, commented: “While it is positive to see leaders in this ranking taking affirmative action on systemic ESG risks, this ranking by ShareAction helps demonstrate just how much progress needs to be made by the industry.”

Findings

The report’s key take aways are:

  • The majority of the world’s largest asset managers demonstrate a substandard approach to responsible investment, with 51% of assessed asset managers having a weak approach to responsible investment.
  • The world’s largest asset managers demonstrate weak responsible investment performance, while some managers with smaller AUM show leadership.
  • Being a passive investor is not a barrier to having a leading responsible investment approach.
  • Membership in the PRI and CA100+ alone is not indicative of strong performance on responsible investment.
  • The majority of assessed voting policies include no specific commitments with regard to shareholder proposals on climate change, human and labour rights and biodiversity.
  • While publishing proxy voting records is becoming more widespread, reporting on voting rationales is still in its infancy.
  • Most asset managers report on their ESG-related engagement at an aggregate level, but rarely provide detail on their engagements and outcomes.
  • While the majority of the evaluated asset managers have publicly endorsed the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, only one fifth report in line with the framework.
  • Public endorsement of the TCFD is not necessarily an indication of real action.
  • The majority of surveyed asset managers do not have board-level accountability on responsible investment.
  • The vast majority of asset managers do not have financial incentives for staff on responsible investment, but those that do perform much better in the ranking.

Elena Johansson

Senior Reporter

Part of the Bonhill Group.