- ShareAction ranked 77 of the world’s largest asset managers with $77trn of assets under management (AUM) on their approach to investing responsibly.
- More than a third of managers, who control half of the total AUM of those surveyed, are rated at the lowest level.
- There was significant improvement among a number of the asset managers like J.P. Morgan Asset Management, SEB Investment Management and T. Rowe Price.
Much like fossil-fuel-funding global banks, the world’s largest asset managers are still struggling to prove their commitments to ESG and sustainability has had any real-world impact.
The “Point of No Returns” report, published at the end of February by the London-based lobbyist ShareAction, ranked 77 of the world’s largest asset managers with $77trn of assets under management (AUM).
“A majority of the world’s largest asset managers are failing to meet even basic criteria, let alone take the steps needed to help protect people and [the] planet for generations to come,” says Claudia Gray, head of financial sector research at ShareAction.
The survey consisted of 107 questions across five thematic sections: stewardship, governance, climate, biodiversity and social issues. The questions included ones on net-zero targets, areas of global biodiversity importance and public health considerations.
Scores – with A as the highest down to E as the lowest – were assigned different weightings. Stewardship and climate change both had a 25% weighting, biodiversity and social issues had 20% each, and responsible investment governance had a 10% weighting.
“Irresponsible and short-sighted”
The results show how much work is still to be done. More than a third of managers (35%) controlling half of the total AUM of all managers in the survey – over $38trn – are rated at the lowest level (rated D or E).
Six of the surveyed respondents ranked outside the top 50 in every category: E Fund Management, Franklin Templeton, Mitsubishi UFJ, State Street Global Advisors (SSGA), Vanguard and Vontobel.
More concerning is that the especially low-rated assets managers are four of the world’s largest: BlackRock, Vanguard, Fidelity and SSGA.
Their approach to ESG is particularly important since their AUM makes up $23.2bn, a third of the total AUM of all the asset managers that ShareAction looked at.
Vanguard has long been a thorn in the side of sustainability. At the end of last year, the asset manager ($7.2trn AUM) walked out of the Net Zero Asset Managers (NZAM) initiative, a collective of fund managers committed to reaching net-zero emissions targets by 2050.
For Vanguard, this was an exercise in providing “clarity” to its investors about the role of index funds and how the manager thinks about “material risks”, including the climate. Its central plank and implicit criticism of the NZAM was that it needed to speak with an “independent” voice.
That independent voice has been used since to criticise ESG. Despite the convincing evidence of the close link between ESG and profitability – and even being called “irresponsible and short-sighted” by former US vice-president and climate leader, Al Gore – in a recent interview with the Financial Times, Vanguard’s chief executive Tim Buckley claimed, “[Vanguard’s] research indicates that ESG investing does not have any advantage over broad-based investing”.
In the ShareAction survey, Vanguard ranked the lowest of all managers regarding social issues, biodiversity and climate – indeed, it still doesn’t have a clear policy on either the climate or biodiversity.
An argument that is frequently used by some fund managers in their defence is that they are passive fund specialists. Vanguard told Capital Monitor last year that its status as a passive fund house – one that sells investment products based on exposure to third-party indices – abrogates its responsibility for any emissions.
It is an argument that would be more convincing if others in the survey hadn’t shown that it is possible. Legal & General Investment Management ($2.1trn AUM), for example, is ranked fourth highest among asset managers.
“It proves that having a predominantly passive investment strategy does not prevent asset managers from promoting responsible investment,” the report says.
Effective policies among asset managers
But there is good news from the report. Although no asset manager received the highest grading of AAA from ShareAction, four did receive an AA or A grade: Robeco ($215bn AUM), BNP Paribas AM ($755bn AUM), Aviva Investors ($499bn AUM), and Legal & General Investment Management.
Robeco, which achieved the only AA grade, had the highest scores for governance and stewardship, and placed in the top six in all three of the thematic sections: climate, biodiversity and social issues. Certainly, the firm’s website outlines its approach in considerably more detail than other firms.
What is perhaps more encouraging is the proportion of managers graded D or E has fallen, from 51% in 2020 to 35% in 2023.
There was also significant improvement among a number of asset managers. Deka Investment ($375bn AUM), J.P. Morgan Asset Management ($2.9trn AUM), Santander Asset Management ($221bn AUM), SEB Investment Management ($256bn AUM), and T. Rowe Price ($1.8trn AUM) all rose by more than 30 places – in fact, J.P. Morgan Asset Management jumped 58 places.
Some of the improvements have resulted from attention to specific areas. SEB Investment Management, for example, was stronger on climate and biodiversity-related issues, while T. Rowe Price zeroed in on stewardship and on social issues.
Elisabet Bergström, head of sustainability at SEB Investment Management, says the improvement was a result of its focus on corporate governance and company dialogues, as well as its proprietary sustainability model for scoring companies on sustainability merits.
But overall, improvements have come from the adoption of effective policies, such as more robust stewardship practices and adopting frameworks for positive climate-related investment.
Europe is currently leading the way in terms of sustainability. “The European regulatory environment is likely having a positive impact on the responsible investment performance of European asset managers relative to other regions,” the report says. All of the firms in the top ten were from the EU or UK, and only six of 39 European asset managers received a grade of D or E.
But while there are areas where the asset management industry has improved, ShareAction does not pull its punches.
It needs to “change urgently” if it is to demonstrate proactive stewardship that safeguards against social and environmental risks for its investors. “This business-as-usual approach is insufficient to drive the change needed to match the scale and urgency of the environmental and social crises we face,” the report concludes.
[Read more: NZBA: Fossil fuel-funding members come under fire]
