For some of the world’s largest asset managers, it seems climate targets are not worth the paper they’re written on.
A new analysis by U.K.-based think tank InfluenceMap of the 45 biggest asset managers, which collectively hold US$72 trillion in assets under management, found that many are not only far off track from meeting their climate goals – they have regressed.
While most have set net-zero targets, nearly all of the equity fund portfolios that were assessed – some 95% – are “misaligned” with the goal of net-zero emissions by 2050 that much of the world is chasing, as a tipping point in climate appears ever nearer.
Late last month, amid rolling heat waves in Europe and scorching wildfires in North America, United Nations Secretary-General António Guterres declared that the “era of global boiling” was upon us.
“Climate change is here. It is terrifying. And it is just the beginning,” said Guterres, on the same day that scientists announced that July 2023 was tracking to be the hottest month ever recorded in human history. “It is still possible to limit global temperature rise to 1.5C [above pre-industrial levels] and avoid the very worst of climate change. But only with dramatic, immediate climate action.”
This message has yet to get through to those who hold the global purse strings, it seems.
“Since FinanceMap’s 2021 report, asset managers’ portfolios are still misaligned with net zero targets, environmental stewardship efforts have stagnated, and asset managers are not supporting effective sustainable finance policy,” said Daan Van Acker, program manager for FinanceMap, an online, publicly available platform produced by InfluenceMap.
The FinanceMap analysis examines more than 13,000 individual equity funds and applies a “climate lens” to their earnings by examining portfolios, investor engagement processes and shareholder resolutions. It considers two metrics: fund exposure to fossil fuel companies and “green” companies, along with how funds are aligned with net-zero goals – a conclusion it bases on estimations of how much companies will produce in the future in climate-relevant sectors, such as the automotive industry, upstream oil and gas production, coal mining and electric power.
FinanceMap’s 2023 report analyzed $16.5 trillion (all figures in U.S. dollars) in equity fund portfolios. The asset managers scrutinized hold 2.8 times more equity in fossil fuel production companies ($880 billion) than in green investments ($309 billion), while the percentage of those carrying out “truly ambitious and effective climate stewardship practices” has shrunk by 45% since 2021: just 18% received an A grade this year, versus 33% in 2021.
The report notes that North American asset managers’ lack of climate progress coincides with the ‘anti-ESG’ trend in the US. Several state governments have taken action to discourage the use of ESG factors by financial institutions and to limit state business with financial actors deemed to be boycotting fossil fuel companies.”
An InfluenceMap spokesperson told Corporate Knights that “Canadian managers' portfolios are similarly misaligned with net zero as those of US managers, and are underperforming relative to European portfolios. This is largely reflective of the wider misalignment of North American markets.”
Canadian managers average a stewardship score of C. BMO Global Asset Management led the pack at B+, while TD and ScotiaBank trailed with D+.
There are brighter spots: European asset managers scored notably better when it came to engagement with investee companies on climate. BNP Paribas Asset Management and Schroders had 2.7 times higher exposure to green investments than the average asset manager. Indeed, it was the smaller European portfolios that fared better. The U.K.’s Legal & General Investment Management and the asset management arms of France’s BNP Paribas, and Switzerland’s UBS all scored As, as well as the U.S.’s Federated Hermes. Japan’s equity portfolios were among those most misaligned with net-zero, the analysis found.
U.S. managers, which have traditionally lagged behind European counterparts on environmental leadership, saw many of their stewardship scores drop: BlackRock went from a B in 2021 to a C in 2023, while Vanguard netted a D+, Fidelity Investments an E+ and State Street Global Advisors a C+.
“The four largest asset managers in the world overwhelmingly opposed climate-aligned resolutions in the 2022 voting season,” according to the report. Scotia Global Asset Management demonstrated the lowest level of climate resolution support (0%).
The average Canadian manager supported 58% of such resolutions in 2021 but only 38% in 2022 (in Europe, the average manager supported 81% of climate resolutions in 2021 and 76% in 2022).
This amounts to a missed opportunity, as “asset managers can – and should – play a crucial role in building alignment” between climate commitments of companies and investors and the actions they carry out, said Jake Barnett, managing director of sustainable investment strategies, for Wespath, in a press release.
Neither U.S. nor European funds are matching their rhetoric of sustainable finance policies with real action. BlackRock, Vanguard and J.P. Morgan Asset Management were unsupportive Scope 3 emissions disclosure as part of the U.S. Securities and Exchange Commission’s climate disclosure rule, for example. And 86% of the asset managers in the report are members of at least one industry group that opposes the sustainable finance policy required to enable decarbonization pathways, the report notes.
“It is not enough to challenge companies to dramatically reduce emissions and create strategies to drive that goal,” said Christina Herman, senior director for climate change and environmental justice at the Interfaith Center on Corporate Responsibility, in a press release.
“If large investors say addressing global warming is important, then they too need to step up and do the necessary work to steer our economy down a less-chaotic path.”
