Asset managers fail to act on climate, biodiversity and people

Environmental Stock photos by Vecteezy

The ‘Point of No Return’s’ report by ShareAction reveals that the world’s largest asset managers are falling short in their efforts to tackle climate change, biodiversity loss, and other pressing societal issues.

Ranking 77 of these entities according to how they’re investing – with a total aggregate control over $77 trillion worth of assets under management – it appears most have failed to make noteworthy progress toward preserving our planet.

Despite being the four largest asset managers globally, Blackrock, Vanguard, Fidelity Investments and State Street Global Advisors scored a poor D or E rating – two-thirds (handling $60 trillion worth of assets) receiving CCC or worse. These worrying results demonstrate that it is those with the greatest power who are failing to meet their obligations to sustainable practices most drastically.

Biodiversity blindspot

While research repeatedly highlights the strategic imperative of ESG integration, the latest ShareAction research uncovers a lack of ambition to drive real-world improvements.

Additionally, it reveals that even some of the highest-rated companies are lacking in biodiversity protection, urging asset managers to swiftly implement stronger policies on forests, rivers and oceans. With voluntary biodiversity standards being developed at pace, and nations soon updating their own plans following a UN Treaty ratified late last year, the finance sector must step up and play a lead role in delivering on commitments to halt and reverse nature loss.

The report draws attention to a significant divergence in ESG performance between asset managers across the world. European firms have come out on top, however US and Asia-Pacific counterparts trail behind with many failing to disclose even the most basic of information relating to their environmental, social and governance activities. Unsurprisingly, this has led to US managers receiving lower grades more often than any other region investigated by ShareAction – in fact, they scored lowest more than three times as frequently as their European rivals.

Asset manager recommendations

But, more positively, ShareAction found the proportion of managers performing significantly worse than their peers has fallen from 51% in 2020 to 35% in 2023. 

To help facilitate greater change, the report shares the first of a series recommendations based on findings:

1. Identify, manage and report on the real-world impacts of investment decisions on sustainability issues, including climate, biodiversity, and social issues.
2. Strengthen dedicated responsible investment policies by explicitly covering climate, biodiversity, and social issues and by making ambitious commitments, such as setting net-zero targets and developing transition plans to align all portfolios with the goals of the Paris Agreement and a 1.5C scenario.
3. For passive asset managers, focus on directing inflows of capital towards funds which align with the goals of responsible investment, through investor education and the creation of new products via appropriate index selection; and engage with index providers to develop new indices where necessary.
4. Use proactive stewardship to foster positive change by engaging with investee companies and exercising voting rights on responsible investment issues. Passive managers have a particularly high burden of responsibility for stewardship due to the limited influence they can have via capital allocation.
5. For asset managers heavily exposed to fixed income, ensure that company engagement with issuers of corporate debt is aligned with responsible investment policies.

To ensure real world impact, and to evidence it, it is essential to hold data on ESG metrics and interactions with portfolio companies.

SI Engage streamlines and simplifies the ESG tracking and reporting process for anyone working with portfolio companies. Thoughtful organisation enables an easy-to-follow path toward sustainable success!

Reach out for more information and a personalised demo.

Read ‘Point of No Returns 2023: Part 1’ here.