Asset managers lay groundwork for stewardship changes but shy away from tough battles
Three times as many managers now hold boards responsible for net zero policies compared to 2020
Asset managers are failing to adapt quickly enough to problems like climate change, ecosystem destruction and social inequality, according to a group of industry insiders.
While many have improved their internal standards, policies and procedures, they are failing to make the bold changes that could have the biggest impact, they write in a new report that was shared with Net Zero Investor today.
On the other hand, three times as many asset managers are now holding their board responsible for net zero-related concerns compared to two years ago.
The ShareAction report is based on responses from the world’s largest 77 asset managers to questions about their governance and stewardship standards.
It is the second in a wider series from ShareAction called Point of No Returns, investigating the world’s 77 largest asset managers and their response to environmental and social issues.
Governance and stewardship
Governance and stewardship standards increasingly affect how responsibly asset managers are geared up to behave.
There is much focus on governance, specifically the policies that control decision-making within asset managers and accountability at a senior level.
Meanwhile, stewardship is also more and more a priority for asset managers, particularly when it comes to concerns how asset managers engage with investee companies, including high-emitters or those with work to do on social issues, such as Shell or Starbucks.
“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," Claudia Gray, head of financial sector research, told Net Zero Investor this morning.
She stressed that, to safeguard the wealth they manage and meet the expectations of their clients, asset managers must have effective governance and stewardship structures in place.
Leadership failing to strategically play all the cards they have in hand to address global crises.
The report's 22 findings reveal that asset managers made considerable progress on senior-level accountability and voting data disclosures.
Three times as many asset managers are now holding their board responsible for net zero-related concerns compared to two years ago. More than four-fifths now have voting policies in place that concern climate and social issues.
While important foundations for change, the report states that voting data disclosure and new policies are not being matched by real-world action.
This could include commitments from asset managers to divest, reduce holdings or refuse to purchase new debt from problematic companies.
Only roughly half of the asset managers surveyed had taken these steps, the researchers stressed.
High-profile issues are avoided
Often, asset managers shy away from measures which might attract the most attention.
Disclosing portfolio impacts, such as carbon footprints, to clients would increase transparency and allow pension holders and investors to be better informed about their money’s impact.
However, only 13 per cent of managers reported disclosing the impacts of all their portfolios on people and planet, according to the report.
Other key findings include that there is a regional divide: European asset managers performed highest in general, with the top ten performers in the stewardship and governance rankings based in the EU or the UK.
There were, however, prominent European laggards, including some in the bottom ten.
Biodiversity is another issue that came up: Consistent with the findings in part one of the Point of No Returns series is a failure to address biodiversity decline, with the majority of asset managers lacking voting and engagement policies on this theme.
Just over a third of asset managers included biodiversity in their voting policies, and just under half included it in their engagement policies.
Diversity was also mentioned: Even the highest-ranking asset managers have a long way to go to ensure gender equality on their boards. Saying this, two-thirds reported several policies or practices to improve internal diversity and inclusion.
Moreover, voting was singled out: Although the vast majority of asset managers now disclose votes publicly, only three of them pre-declare their voting intentions, which is essential to spur on dialogue and progress on environmental or social themes.
Finally, remuneration continues to be an issue: 83 per cent of asset managers reported financial incentives relating to responsible investment, up from just 7 per cent in 2020. However, at the most senior level this figure dips to 27 per cent.
The report included a series of recommendations for asset managers, asset owners, investment consultants and policymakers based on its findings.
They ask for asset managers to show more robust and effective stewardship and governance, asset owners to scrutinise and hold them to account, and policymakers to empower regulators and develop strong stewardship rules.
