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Funds industry called out over role in fighting climate change

climate_change_investment_sustainabilityThe asset management industry’s role in the future of the planet has come into question again following the publication of two reports calling out firms for acting too slowly on climate targets. 

One study by thinktank InfluenceMap stated that the portfolios of the world’s 30 largest fund managers, which collectively hold around $50 trillion (€56.1 trillion) in assets, continue to be misaligned with the sustainability goals laid out by the Paris Agreement.

Urgent action is required in order to drive change in key climate-risk sectors such as electric power, as well as oil and coal, the lobbying platform advocated.

Fund managers were scored on three criteria: engagement, climate-related shareholder resolutions, and portfolio analysis. 

Once again, the US was found to be lagging its key European counterparts on engagement and voting, the study highlighted.

“This report highlights the need for giant US 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,” said Dylan Tanner, executive director of InfluenceMap. 

The world’s largest fund manager, BlackRock, recorded an improvement in its engagement score from C+ to B, placing it in the top five and ahead of its competitors Vanguard and Fidelity. 

In Europe, Legal & General Investment Management and the asset management arms of BNP Paribas and UBS all scored within the A grade for climate engagement.

The top four US fund managers performed poorly on climate-related shareholder resolutions last year. Vanguard backed 21% of such resolutions, while Fidelity and State Street Global Advisors (SSGA) voted for 23% and 50% respectively, according to the study.

BlackRock voted for 24% of its climate-related shareholder resolutions – a marked increase from just 5% the previous year.

SSGA’s global co-head of asset stewardship, Robert Walker, said climate change has been a “cornerstone” of the firm’s asset stewardship programme since 2014 to the present, during which time over 600 climate-related engagements have been carried out. 

“We remain committed to engaging our portfolio companies and the wider sector on addressing [the] climate issue,” he said. 

“This year, we will focus on companies that are particularly vulnerable to the transition risks of climate change and will continue our ongoing engagement with companies in other sectors that, while not as carbon intensive, also face risks such as the physical impacts of climate change.” 

A spokesperson for Vanguard said the firm cares "deeply" about climate change as it represents a "profound" fundamental risk to investors' long-term success. Over the last several years, they added, the fund manager has invested more time and resources in monitoring climate-related risks.

"Where climate change is a material risk, Vanguard encourages companies to set targets that align with these goals and to disclose them clearly," the spokesperson said.

Fidelity contested the report, stating that the rating does not accurately represent its commitment to ESG and climate change. By their calculations, support for environmental proposals has increased from 29% in 2017 to 46% in 2020. Last year, the US fund manager conducted around 800 engagements with companies which were directly related to proxy voting issues, including climate change, according to the firm.

"Unfortunately, we have not had the opportunity to meet with this group and educate them about our ESG investment process," Funds Europe was told. 

In a separate report, BlackRock, which manages nearly $8 trillion in assets, was accused of taking “half-hearted steps” to invest more sustainably. The study by NGO and thinktank Reclaim Finance alongside Urgewald called out the firm for still holding $85 billion in coal companies such as Glencore and RWE despite pledges to invest more sustainably. 

A spokesperson for the US fund giant said this report is “misleading” and fails to take into account certain nuances when it comes to sustainable investing, highlighting that it is necessary to have holdings in such companies to be able to drive industry change. 

Since its chief executive Larry Fink pledged to prioritise sustainability in January 2020, the fund manager has ‘deepened’ its integration of sustainability across its investment and risk management platform, as well as increased its focus on sustainability in its stewardship activities. The firm also added 51 new ESG index offerings throughout 2020, bringing the global total to 141.

“Our conviction is that climate risk is investment risk. Among the many initiatives to help our clients navigate this risk, we have both achieved 100% ESG integration in our active strategies and, where we have discretion in these strategies, completed the exclusion of equity and bond holdings in companies generating more than 25% of revenues from thermal coal production,” BlackRock said in a statement to the media. 

However, the Reclaim Finance report points out that the majority of BlackRock’s assets are invested in index funds.

“This investment trend is very problematic for climate action. As with BlackRock’s coal exclusion policy, investors often do not apply their fossil fuel policies to passively managed funds,” it states.

According to InfluenceMap’s research, overall support for climate-related resolutions increased during the 2020 proxy season (62%) compared with 2018 (56%) and 2019 (39%) levels. However, this report shows many US firms continue to rely on their European competitors to do the heavy lifting in this area.

“Given the huge influence these asset managers have over the global economy, it is vital they take action to ensure the world can meet the climate goals of the Paris Agreement," chief executive Tanner said. 

“However, this latest report shows most asset managers are still moving too slowly when it comes to using their clout to drive change in investee companies,” he added. 

Nevertheless, the decision by BlackRock, State Street Global Advisors and JP Morgan Asset Management to join the investor-led initiative Climate Action 100+ process was a “promising development”, the report stated. 

The methodology behind InfluenceMap’s research used analysis of publicly available information and financial databases that rely on accepted benchmarks and tools such as the Paris Agreement Capital Transition Assessment. 

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