The research found a vast difference between what asset managers said and what they actually did on climate and biodiversity matters
The latest in a series of reports on the asset management community finds that asset managers are simply not aligned with the world’s leading scientists and the UN when it comes to emissions and net-zero.
The key findings included inadequate targets to reduce emissions and continued investment in companies that are expanding their oil & gas production.
It also found that only a quarter of managers have made commitments on deforestation, and none have commitments to avoid damage to other natural habitats, such as wetland draining for agricultural use or ocean pollution.
It also asserts that managers are not investing enough in new low carbon energy opportunities, which will delay the transition to greener, cleaner energy.
There’s an absence of positive investment and huge gap between words and deeds, said Abhijay Sood, financial sector research manager at ShareAction.
“There is very limited commitment in terms of sort of restricting harm to natural habitats,” said Sood. “We found that only about a quarter of asset managers have a deforestation commitment, and none have commitments to protect other types of natural habitat, and only 10 asset managers – all Europeans – without fossil fuel expansion.
“Given that the IEA and the IPCC among others is saying we can’t have any new oil and gas, that’s a that’s a big problem.”
About two thirds of asset managers are doing some form of climate scenario analysis, but fewer than half of those are using that to inform their investment decisions
Abihijay Sood, ShareAction
Going through the motions
With net zero targets, ShareAction is looking for commitments to absolute emissions reductions paired with programmes of structured engagement.
“Something that goes beyond just dumping assets,” said Sood. “While most asset managers have some climate change targets, they are not all clear and very few are integrated into their key, mainstream funds. There were only eight of the asset managers that make explicit reference in the mainstream fund.”
The report has identified three basic groups. The real laggards are not doing anything, while the ones at the top are making at least some steps in the right direction.
The middle group are making some commitments, but they are not very serious and Sood had examples of both.
“One concerns the common complaint we get around data availability. So we asked the managers specifically about biodiversity and the list of the most common data sources.
“We found that only 10 asset managers were using four or more of those data sources, while 70% of asset managers told us they don’t have the data, and 13% say they’re going to work on using the data.
The second group are asset managers who are undertaking work that is both costly and time intensive, and yet they don’t use the outputs in their work.
“There are managers assessing biodiversity risks, but only about a quarter of them are using that data to inform their policies and targets,” said Sood.
“So there are about two thirds of asset managers doing some form of climate scenario analysis, but fewer than half of those are using that to inform their investment decisions.”
A little less conversation, a little more action, please…
ShareAction makes a number of recommendations for asset managers. These include:
– Make commitments about the use of land and sea that protect not only forests but other critical ecosystems on land, rivers and oceans.
– Take climate change seriously by setting detailed interim net zero targets and ruling out investments in fossil fuel expansion.
– Invest significant amounts in clean energy companies across all funds to help the best climate solutions access the funding they need.
– Start using the available data on climate and biodiversity to inform investment decisions.
We want managers to adopt standards and scenario analysis,” said Sood, “to start monitoring whether they are overlooking the most important data and then start making use of it.
“Not one asset manager scored top marks on every possible metric,” he added, “so there’s room for improvement across the board.”
The report, Point of No Returns 2023 Part IV: Climate and Biodiversity, is launched today, to coincide with World Environment Day.
