Report: Most management giants misalign as net zero efforts dwindle

Most of the world’s largest asset managers have not made any significant progress on their net zero goals since 2021, despite an increase in climate targets through the Net Zero Asset Managers (NZAM) coalition and similar initiatives. 

That is the damning conclusion of a new report, which assessed the world's 45 largest managers' equity portfolios, stewardship efforts as well as sustainable finance policy engagement activities. 

With $72 trillion in cumulative assets under management, managers "continue to hold equity investment portfolios misaligned with Paris Agreement goals, while their efforts to drive the transition through stewardship have stagnated," according to the research shared with Net Zero Investor.

In fact, the assessed firms do not show "active and effective support for climate finance policy required to enable decarbonization pathways, and maintain memberships to industry associations actively blocking it," InfluenceMap's so-called FinanceMap analysis found.

Particularly the ambition of US asset managers appears to have decreased, reversing an upwards trend up until last year.

This U-turn comes as an anti-ESG movement is rapidly gaining momentum in the world's largest investment market, with some state legislators seeking to limit investors’ use of ESG factors and the phase-out of fossil fuel investments.

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Misalignment

Across the board, the world’s largest asset managers’ equity funds invest in companies misaligned with net zero goals, the researchers stated, who analysed $16.4 trillion of the asset managers’ equity fund portfolios. 

In fact, of all the portfolios assessed, 95% are misaligned with the goals of the Paris Agreement. 

Meanwhile, the world's 45 largest managers collectively hold 2.8 times more equity value in fossil fuel production companies, over $880 billion, than in green investments, around $309 billion.

A number of smaller, European asset managers’ portfolios appear to outperform their peers, however, with Natixis and Schroders receiving a positive so-called Portfolio Paris Alignment score, with Schroders and BNP Paribas Asset Management both having 2.7 times higher exposure to green investments than the average asset manager. 

This contrasts with the large US and Japanese asset managers, who continue to demonstrate below average alignment scores.

"Particularly negative equity fund portfolios include Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Daiwa Securities, and BNY Mellon," the report said.

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Moreover, the researchers stressed that "the assessed equity funds for Goldman Sachs and State Street Corporation are the most exposed to the fossil fuel production value chain, both with 2.2 times higher exposure to the sector than the average asset manager."

Stewardship

The report further said that the portion of asset managers carrying out effective stewardship practices relative to best practice has decreased since 2021. 

The percentage of assessed managers receiving a FinanceMap stewardship score in the A band — demonstrating ambitious, effective, and transparent climate stewardship practices — dropped from 33% in 2021 to 18% in 2023.

The most robust climate stewardship continues to come from European managers Legal & General Investment Management, UBS Asset Management and BNP Paribas Asset Management, as well as Federated Hermes. 

These firms show "clear evidence" of engagement with companies on the transition of business models and are active members of Climate Action 100+ (CA100+), according to the research.

This is in stark contrast to the big four US asset managers BlackRock, Vanguard, Fidelity Investments as well as State Street Global Advisors.

All of these asset managers receive a FinanceMap Stewardship Score of C+ or lower, "indicating a lack of effective climate stewardship processes and use of shareholder authority to engage companies to transition," according to the report.

Fidelity Investments and Vanguard are non-members of the CA100+ process and the Net Zero Asset Managers (NZAM) initiative, following Vanguard’s departure from NZAM in December 2022.

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Climate resolutions

Zooming in on the most recent proxy seasons, the analysis found that support for climate-related resolutions was on the rise until 2021, with the average asset manager supporting 35% of climate-relevant motions in 2019, and even 61% in 2021. 

However, 2022 saw a considerable drop in such support, with the average asset manager supporting just 50% of climate-relevant resolutions.

Particularly, US-based asset managers displayed a trend of voting against a large portion of climate-related resolutions in 2022, with the average US manager supporting just 36% of climate resolutions, compared to 50% in 2021.

In addition, the world’s largest asset managers "are not utilizing their considerable policy advocacy influence to drive ambitious sustainable finance policy, despite publicizing top-line messaging emphasizing its importance," the researchers wrote. 

For instance, a number of the asset managers assessed were unsupportive of scope 3 emissions disclosure as part of the US SEC climate disclosure rule, including BlackRock, Vanguard, and J.P. Morgan Asset Management.

Meanwhile, the report argued that industry associations representing the asset management sector continue to "strategically oppose ambitious sustainable finance policy globally," including the Investment Company Institute (ICI) and Securities Industry and Financial Markets Association (SIFMA), in the US, and the European Fund and Asset Management Association (EFAMA) in the EU. 

Of the 45 asset managers assessed in this report, 86% are members of at least one of these industry groups.

Overall, the researchers said they found "a significant gap between the increase in net-zero commitments by the world’s largest asset managers and their lack of meaningful short-term climate action." 

They concluded that stewardship efforts "appear to have stagnated, contributing to continuously climate-misaligned portfolios, while policy support is largely absent." 

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