By Deepanwita Gita Niyogi*
The world’s largest asset managers are far off track to meet the 2050 net zero commitments, a new study released by InfluenceMap, a London-based think tank working on climate change and sustainability, says.
Released on August 1, the Asset Managers and Climate Change 2023 report by FinanceMap, a work stream of InfluenceMap, finds that the world’s largest asset managers have not improved on their climate performance in the past two years.
The report scores the 45 largest asset management companies based on three criteria. These are equity portfolio analysis, stewardship of investee companies and sustainable finance policy engagement. All asset management firms analysed in the work were consulted on their results prior to release.
The portfolios of the world’s 45 largest asset managers, which collectively hold $72 trillion in assets under management, continue to be highly misaligned with the Paris Agreement goals. Of the equity fund portfolios assessed, 95 percent are misaligned with the IEA Net Zero Emissions by 2050 Scenario.
Data shows that most asset managers are not walking the walk when it comes to using their influence to drive real change in investee companies and sustainable finance policy, according to FinanceMap programme manager Daan Van Acker.
Acker said since the last study in 2021, asset managers’ portfolios are still misaligned with net zero targets and they are not supporting effective sustainable finance policy.
Acker explained there has been a reversal of upwards trends in asset managers' climate performance in the US. When asked the reason for this Acker explained that it's difficult to point to singular causes for this, as there are undoubtedly a number of factors, including general market conditions.
“However, we do note that the US asset managers' backtracking appears to coincide with the anti-ESG (environmental, social and governance factors) trend which has been driven in the US by a number of state legislatures.”
Globally, a few European asset managers appear to be performing highly on climate both in portfolio allocation and stewardship of companies. Meanwhile, Japanese asset managers have improved in some areas, but are largely lagging behind their European counterparts and best practice, according to the study.
Engagement with asset managers
The study engaged with all the asset managers prior to its release, sending them the results and having conversations with them. In general, there is an understanding that the methodologies are robust and based on industry-standard guidelines.In many cases, the asset managers provided additional resources for the researchers to take into account, and in some cases asset managers were advised on where they could be improving in their climate performance.
When it comes to Asia, equity portfolios in Japan remain among the most misaligned with net zero globally
Juliette Ma, senior analyst of Finance Map, said the research shows that some asset managers have turned back on their climate commitments, with this trend particularly evident among US asset managers.
“Although there are various factors attributing to this trend, including geo-political events and conditions, it appears that US-based financial institutions are feeling the pressure from the anti-ESG movement. Notably coinciding with the trend was Vanguard’s departure from the Net Zero Asset Managers initiative as well as the drop in climate resolution support in 2022,” Ma added.
Just transition
When asked about the pressure on China and India to phase out fossil fuels, she said the report specifically assesses the performance of the asset management sector but the just transition appears to be a growing engagement topic among stewardship leaders, and so it may be assessed in the future.
The report says European portfolio sector companies are projected to expand renewables as part of just transition over the next five years while North America and Japan favour gas and coal-fired power investments. But the coal mining sector is less prominent than the other sectors assessed in terms of the total value invested due to the trend of divesting from the sector whereas the most invested one was the oil and gas sector.
She pointed out that the conversation with the asset managers involved discussions about FinanceMap’s methodologies, suggestions on additional pieces of evidence that could be added to the analysis, and advice on how asset managers could improve on their performance.
The report says that collectively asset managers hold 2.8 times more equity value in fossil fuel production companies than in green investments in the assessed sample.
It also says that European asset managers top the chart when it comes to engagement with investee companies on climate. When it comes to Asia, equity portfolios in Japan remain among the most misaligned with net zero globally.
“Although there are various factors attributing to this trend, including geo-political events and conditions, it appears that US-based financial institutions are feeling the pressure from the anti-ESG movement. Notably coinciding with the trend was Vanguard’s departure from the Net Zero Asset Managers initiative as well as the drop in climate resolution support in 2022,” Ma added.
Just transition
When asked about the pressure on China and India to phase out fossil fuels, she said the report specifically assesses the performance of the asset management sector but the just transition appears to be a growing engagement topic among stewardship leaders, and so it may be assessed in the future.
The report says European portfolio sector companies are projected to expand renewables as part of just transition over the next five years while North America and Japan favour gas and coal-fired power investments. But the coal mining sector is less prominent than the other sectors assessed in terms of the total value invested due to the trend of divesting from the sector whereas the most invested one was the oil and gas sector.
She pointed out that the conversation with the asset managers involved discussions about FinanceMap’s methodologies, suggestions on additional pieces of evidence that could be added to the analysis, and advice on how asset managers could improve on their performance.
The report says that collectively asset managers hold 2.8 times more equity value in fossil fuel production companies than in green investments in the assessed sample.
It also says that European asset managers top the chart when it comes to engagement with investee companies on climate. When it comes to Asia, equity portfolios in Japan remain among the most misaligned with net zero globally.
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*Freelance journalist
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