Despite the asset management industry’s clear commitment to climate-related issues, practical and concrete responses continue to lag initial policy statements. The latest research from investment consultant Redington reveals the scale of the challenge and the areas where most improvement is required.
As part of its annual Sustainable Investment (SI) Survey, the firm engaged with 122 asset managers across a range of geographies, covering 232 strategies and an aggregated £37.7trillion in combined assets under management.
On climate change in particular, the research reveals three key areas where managers must act in order to bridge the gap between rhetoric and reality:
• Integration: 87% of managers report integrating climate into their investment processes (up from 80% in 2021). But at a strategy level, far fewer (63%) actually perform climate risk assessments and only 67% monitor emissions-based metrics. That’s a 24% and 20% shortfall, respectively.
• Engagement: 92% of the surveyed strategies state that they prioritise climate change in their engagement efforts – but only 54% track and report engagement activities. This is a 38% shortfall.
• Emissions targets: 59% of managers have a firm-level net-zero target, but similar targets cover only 34% of their strategies. This is a shortfall of 25%.
The results show an industry grappling with complex and fast-moving change – at a time when climate data still has room for improvement.
Anastasia Guha, Head of Sustainable Investment at Redington, commented: “On climate change, as on so many issues in the social, economic and environmental sphere, it’s not surprising that words come before actions. But translating rhetoric into reality is a challenge that continues to weigh on the asset management industry, and it is clear that the pace of decisive action is significantly lagging.
“The increasing commitment to integration, engagement and emissions objectives is today, as it was last year, welcome progress. But as industry leaders and responsible stewards of global capital, asset managers cannot afford to hide shortfalls in practice under noble principles – nor should they be comfortable letting firm-level progress mask a lack of action in individual strategies.
“The gap between statements at firm level and what is delivered within strategies is a trend of particular note in this year’s findings and a distinction that the industry needs to address sooner rather than later.”
In some areas, the gaps to be bridged are wide. For example, although commitments to integration are increasing year-on-year, still only 37% of surveyed strategies are monitoring their portfolio’s alignment to the objectives of the Paris Agreement.
On other issues, like engagement, the gaps often occur at a more granular level. For example, of those managers that do approach, track and report on stewardship at the strategy level, 98% say that climate change is a priority in their engagements with invested companies, as they do for other issues such as human rights (87%), biodiversity (80%), pollution & waste (84%) and business ethics (80%). But when they show which issues they have actually engaged on in the past 12 months, the numbers fall short in every instance – to 72%, 59%, 40%, 49% and 38%, respectively.
This chimes with the report’s wider findings on stewardship and voting rights. This year, only 26% of respondents reported having voted on 100% of resolutions – down from 43% in 2021.
Guha continued: “Untapped potential to engage is a notable theme in this year’s findings and a trend from which climate change is, unfortunately, not exempt. While almost every manager we spoke to highlighted climate as a priority in their engagement efforts, many were unable to provide any evidence of engagement on the issue – making genuine progress difficult to track.
“At this stage, managers should be using all the tools at their disposal and exercising voting rights to the fullest extent possible, leveraging their influence to positively impact company management.
“Failing to engage speaks to the broader climate action gap observed in our report this year, yet the responsibility to influence meaningful change does not fall solely on asset managers.
“As an adviser to over £600bn of client assets, allocated across 150+ managers, we have our own responsibility to use our influence as a force for good. Last year, we launched our 7-point climate action plan, which includes aligning our default client advice with achieving the goals of the Paris Agreement and reaching net zero by 2050 at the latest – and we remain convinced that collaboration across the industry is essential for managing the climate crisis and driving the global transition to net zero.”