Our key takeaway: A lot more walking, and a lot less talking, is needed on the part of asset owners and asset managers when it comes to aligning portfolios with the Paris Agreement goals.
ShareAction released ‘Laying the Track: The Race to Zero’, a briefing for policymakers part of COP26 related to how the asset management industry is responding to the climate crisis. The briefing builds on ‘Point of No Returns III – Climate Change report’ which surveyed 75 of the world’s largest asset managers:
- Policy, but without action. ShareAction finds that although “over half of asset managers make formal climate-related policy commitments … only a small percentage adopt concrete measures around analysis and decarbonisation of their portfolios.” Specifically, only 35% have committed to invest in low-carbon opportunities to align with the low-carbon transition, while just 16% of asset managers have a coal exclusion policy for all portfolios under management. Scenario analysis, which allows asset managers to explore how climate-related risks impact portfolios over time, is hardly used. ShareAction recommends that the government mandate climate-related disclosures in line with TCFD recommendations and provide relevant guidance.
- Focus on company disclosure, to the detriment of action. ShareAction finds that “[i]nvestor engagement on climate change focuses on the disclosure of climate-related risks, while action-focused engagement remains low.” Specifically, 75% of asset managers declared disclosure in line with TCFD recommendations as one of their top five engagement priorities – while only 44 % state that corporate strategy alignment with a <2C scenario is among their top five engagement priorities. ShareAction provides the example of Equinor, where a shareholder proposal requesting quantitative targets for scope 1, 2 and 3 GHG emissions was rejected in 2019 by investors, of which 86 % had stated their company engagement priority was emission reduction. ShareAction recommends that asset managers become signatories of the new Stewardship Code (which prioritises action-focused engagement with companies to inform long-term investment decisions) and make public commitments to action-oriented engagement.
- Focus on financial risks, not on climate risks. ShareAction finds that “[w]hen describing climate-related risks in connection with investment portfolios, most asset managers focus on the financial risk that climate change poses for investments. Less consideration is given to the climate-related impacts of investments.” Specifically, only 27 per cent of asset managers give a balanced account of both negative and positive impacts of their investments – with a majority only describing the positive impacts of their investments. ShareAction recommends that the government introduce legislation requiring companies, asset owners and asset managers to report on how they are aligning their portfolios with the Paris Agreement goals.
For more, see ShareAction, Laying the Track: The Race to Zero – The role of asset managers in tackling the climate crisis (June 2021)
