World’s largest asset managers still not making the ESG grade

From Best Execution:

BlackRock, Vanguard, Fidelity, State Street Global Advisors and other global asset managers controlling over £77 trillion in assets are not delivering the environmental, social and governance (ESG) goods, according to ShareAction’s ‘Point of No Returns 2023’ report.

The study, which ranked 77 major asset managers from best to worst in a league table, found that two-thirds scored a CCC rating or worse.

It assessed whether investment policies meet basic responsibility criteria, including on climate, biodiversity, social, governance and stewardship.

Shareolder noted that there were “serious gaps” in their responsible investment policies and practices and that for now, very few asset managers are making the grade.

It revealed that 40% of the firms it surveyed don’t monitor whether investee companies operate in areas of global biodiversity importance. A fifth monitor the metric, but do not impose any restrictions.

“We did see some surprising and inspiring green shoots of progress, with some well-known names making significant improvements, and European asset managers, in general, leading the pack,” says Claudia Gray, head of financial sector research at ShareAction.

She added, “But, as global standards remain so low, almost every asset manager needs a jolt to the system. We are running out of time to act on these global problems if we want to avoid catastrophes.”

European asset managers are significantly outperforming their counterparts in the US and Asia. Only six of 39  of the region’s asset managers were allocated a grade of D or E compared to over a half of their counterparts.

In North America, the figure was 13 out of 25 while 8 of 13 from Asia Pacific received a D or E grade, and none were graded higher than B.

The ShareAction report said that Robeco, a Dutch investor owned by Orix Corp., earned the highest score, followed by BNP Paribas Asset Management, Aviva Investors and Legal & General Investment Management.

In the US,  J.P. Morgan Asset Management was among the biggest improvers, rising almost 60 places to 13th after adopting social and biodiversity policies, as well as engaging on topics such as human capital management.

The results “show that investing can be both responsible and profitable, even for those managers of a considerable size,” ShareAction said.

The non-profit also believes that the European regulatory environment is likely having a positive impact on the responsible investment performance of European asset managers relative to other regions.

Data remains one of the biggest stumbling blocks. As Kifaya Belkaaloul, head of regulatory at  NeoXam notes, “The challenge that many asset managers are facing in implementing ESG strategies into concrete action is that they do not have access to the quality of data that is required to effectively assess the ESG implications of a particular investment.

Unless firms can find a way to get easy access across the business to the information that underpins ESG scores, such as climate, biodiversity, social, governance and stewardship data, buy-side institutions are in danger of being unable to actually carry out ESG strategies”

ShareAction said the introduction of mandatory reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and work with the asset management and the wider investment industry to develop guidance to help with implementation should be implemented.

The group also said the development and enforcement of strong, mandatory stewardship rules covering asset owners, asset managers and service providers that cover responsible investment factors must also be introduced.

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