Although sustainable investing has become mainstream, the majority of asset managers demonstrate a substandard approach to responsible investment, according to a new report – Point of No Return – from ShareAction, a non-governmental organisation.
The report, which assesses 75 of the world’s largest asset managers, states that current leading practice is still “a world away from what is needed of the sector” and that a ‘gold standard’ for responsible investment requires investors to take account of the adverse impacts of their investments on people and the planet.
Investors also need to look underneath the labels. For example, being a signatory of the UN Principles for Responsible Investment or member of Climate Action 100+ does not mean an asset manager has the requisite ESG sustainable credentials. It is not alone indicative of strong performance on responsible investment, the report said.
One of the problems highlighted was that the majority of assessed asset managers did not have board-level accountability on responsible investment. Many also fell short in terms of training and education with some arguing that their day-to-day work implicitly requires knowledge sharing on environmental, social and governance (ESG) topics.
However, the NGO believes that systemic issues, including climate change and biodiversity, “require training to help understand not only risks at the portfolio level, but also the real-world adverse impacts of investment behaviours”.
ShareAction recommended stronger standards for ESG training and that external scientific expertise should be incorporated into programmes and shared across the firm.
It also points to regional differences with European asset managers leading the way on responsible investment while the US and Asia Pacific lag behind.
It said this is perhaps unsurprising given the strong regulatory signals on sustainable finance at the EU level – such as the EU’s Sustainable Finance Agenda – and the country level – for example Article 173 of the French Energy Transition Law and the Dutch Climate Agreement.
The asset managers that are frequently cited in the report as leaders in best practice include BNP Paribas Asset Management, NN Investment Partners, AXA Investment Managers, Robeco, and Legal & General Investment Management.
Those that did not score as highly included the world’s six largest asset managers – BlackRock, Vanguard, State Street Global Advisers, Fidelity Investments, Capital Group and JP Morgan Asset Management. The report said that despite having a combined asset under management of over $20 trn (representing over a third of total assessed managers’ AUM), “they all performed poorly on the factors we see as fundamental to robust responsible investment practices.”