While the asset management industry has made strides in its sustainability efforts, more challenging battles remain. That’s the conclusion of a recent report by ShareAction, a nonprofit organization aiming to drive responsible investing among asset managers.
ShareAction ranked 77 of the world’s largest asset managers by their ESG initiatives. They found that most of the improvements happened in the areas of transparency or general policies. However, there was a clear lack of escalation into necessary action when the policies were infringed upon.
“Although the majority of asset managers had escalation steps in their policies for engaging with investees, over half did not include consequences for unsuccessful engagement, such as divestment or a downgrading in internal ratings,” wrote Danielle Vrublevskis and Marina Zorila, authors of the report. “Additionally, asset managers often shy away from measures which bring the most attention, including co-filing resolutions and writing public statements. These actions can be the most impactful, and yet they are being under-used.”
The good news is that three times as many managers say their boards oversee ESG policies. And over 80% have voting policies in place regarding climate change, governance, and social issues. The area that was lacking was biodiversity.
Other findings showed that only four asset managers (out of 77) received the highest grades (AA or A) for their ESG efforts. Meanwhile, 35% had a low grade of D or E. Also, there was a wide dispersion of performance across sectors and only a few managers succeeded in showing consistent achievements across all areas.
Unfortunately, among the worst performers were four of the world’s largest money managers. On the positive side, European money managers were clear leaders compared to North American or Asia Pacific firms.
Top managers were Europe-based Robeco (grade AA), BNP Paribas Asset Management (A), and Aviva Investors (A). Among U.S. managers, the best were New York Life Investments (B), J.P. Morgan Asset Management (B), and T. Rowe Price (B).
Other large firms had lower grades, such as Invesco ( CC), AllianceBernstein (CC), Goldman Sachs Asset Management (C), PIMCO (C), Morgan Stanley Investment Management (D), BlackRock (D), Capital Group (D) and State Street Global Advisors (D). Vanguard and Fidelity Investments had the lowest rating of E.
“Most asset managers have an insufficient approach to responsible investment, despite many being keen to promote their responsible investment credentials,” noted the authors.
“More than two-thirds of the managers surveyed received a CCC rating or worse. Since 2020, there has been a slight drop in the number of asset managers achieving AAA-A or BBB-B grades. It is, however, encouraging that the proportion of managers graded D or E – indicating they are performing significantly worse than their peers – has fallen, from 51% in 2020 to 35% in 2023.”
U.S. managers showed bad performance in the area of climate. Only three were in the top 30 for their climate actions.
“Yet North American asset managers have a crucial role to play in responding to the climate crisis because of their outsized influence: they represent more than three-fifths of the total assets under management in this study, despite making up fewer than a third of the managers surveyed,” said the report.
The survey also found that five asset managers, including T. Rowe Price and JP Morgan Asset Management, improved by more than 30 places between 2020 and now.
“Their improvements have come from the adoption of effective policies across one or more of the themes we investigate, more robust stewardship practice (including, for example, formalized engagement guidelines), and the adoption of a framework for positive climate-related investment,” wrote the authors.
Managers didn’t need to be diversified or engage in active investment to score well. Even those that used a passive investment style or focused on specific asset classes could have responsible investment performance.
“Currently, some asset managers demonstrate leadership in particular areas, but only a very small number are performing strongly across all the topics included in our survey,” concluded the authors. “Though it is encouraging to see some asset managers improving, too many still need to substantially improve their policies and practices.”
