Europe's Asset Managers Lead On Engagement On Climate Change /A Step Change Is Needed By The Industry

At the start of 2021, as the world reels from the forces of nature in a protesting natural environment amid the ravages of a virulent virus , the ability to influence human behaviour is a critical skill for leadership. The asset management industry has some considerable capacity for that enormous influence, and the Paris Agreement on the need for climate action was adopted five years ago, in 2016. But, according to a new report, asset managers are still not paying nearly enough attention on aligning their goals with that agreement.

The financial services industry has always loved rankings. European asset managers will love topping this chart when it comes to engagement with their investee companies on climate, as the Asset Managers and Climate Change 2021 report suggests they have done. It scores asset management firms based on three criteria: engagement with investee companies, support for climate-related shareholder resolutions, and a portfolio analysis.

Image credit : InfluenceMap London January 13, 2021 from Asset Managers and Climate Change 2021

“Once again, we see European asset managers taking the lead over their U.S competitors. This report highlights the need for giant U.S asset managers to step up and take stronger action - especially given their market dominance and unique ability to send a clear signal to the rest of the economy. In addition, even for those asset managers who lead on stewardship, the ultimate test will be real-world improvements on climate change by problematic companies. This needs to be demonstrated sooner rather than later if high climate-risk companies are to remain in portfolios” said Dylan Tanner at InfluenceMap, the authors of the report.

Amid all the uncertainty of 2020 and 2021 that message is clear, coming as it does not only here, but from many sources across the globe. It needs to resonate everywhere, among stakeholders.

In this report Legal & General Investment Management and the asset management teams of BNP Paribas and UBS all scored a whopping A grade in the rankings. By contrast, the global market leader (by assets under management or AUM) BlackRock recorded an improvement from C+ a year ago to B on engagement. It was still ahead of fellow U.S competitors Vanguard, which got a C, Fidelity Investments - oh dear a D - and State Street Global Advisors (B-).

Shareholder resolutions have become an increasingly important way to drive change in investee companies. It’s also, as the report points out, a signal to the broader market on governance expectations by the corporate sector on climate change. Isn’t that what it is all about in 2021? Realigning business and society better, to face the challenges.

Publicly listed businesses (as well as private ones ) need to care not just about the increasingly few who can afford to be shareholders, but about the impact they do or do not make on society’s construct, because it is ultimately what gives them legitimacy.

The top four US-based companies also scored poorly on support for crucial, market guiding climate-related shareholder resolutions in 2020. BlackRock voted for only 24% of such resolutions, says this report. For Vanguard it was 21%, Fidelity Investments 23% and State Street Global Advisors backed 50%, but still got just a B- rating overall.

A timely report, it should make people think ahead of COP26, with the U.K hosting. It says overall support for climate-related resolutions increased during the 2020 proxy season (62%) compared with 2018 (56%) and 2019 (39%) levels. But it adds that many US firms “continue to rely on their European competitors to do the heavy lifting in this arena.”

Frankly, this is not about rankings - it is about survival, and collaboration. There is a portfolio analysis in the report of the world’s largest funds, based on a detailed study of approximately 3,000 companies with a market cap of more than $20 trillion within four key sectors: automotive, oil & gas, utilities and coal production.

All of them need more scrutiny, and more encouragement on climate action. The report calls out the sectors that need the attention of asset managers, and says: “ Asset managers’ overall portfolios continue to be overweight in companies deploying brown technologies and underweight in those deploying green technologies. Without urgent action, this represents an increased risk of stranded assets.”

Will that ‘urgent action’ need to resort to some form of regulation ?

Main image credit : Pic by NOAA on Unsplash, royalty-free.