Investment managers’ boardrooms lagging on ESG

According to LCP’s biennial responsible investment survey, which polled nearly 150 investment managers, while 69 per cent of these companies have mandatory responsible investment training for staff, only 23 per cent have similar training for board members.

The research also showed that in one-third of managers, no one at board director level had responsibility for ESG and stewardship.

The consultancy warned that, although many managers are improving their responsible investment practices, they are failing to keep pace with new regulatory requirements and expectations, leading to a reduction in managers given the top grades — on a scale of 1 to 4 — since 2020.

The survey did, however, find that managers are taking ESG issues more seriously, with 96 per cent now signed up to the UN Principles for Responsible Investment, up from 66 per cent in 2016.

Progress had likewise been made on monitoring and assessing climate risk, as 36 per cent of respondents said they had published a Task Force on Climate-related Financial Disclosures report disclosing the company-wide impacts of climate change. LCP noted that these report pre-empted regulatory requirements.

It also found that 42 per cent said they were targeting net zero emissions for assets under management, although 65 per cent said they did not yet have a clear plan in place to achieve this target.

Finally, the report found that voting practices continue to improve, but they remain skewed towards climate change and governance issues. Managers surveyed exercised 97 per cent of eligible votes, either voting against management or abstaining at least once at 35 per cent of annual meetings in the year to June 2021.

However, it noted that 42 per cent of managers lacked a “formal escalation policy” when companies do not meet their engagement targets. Additionally, the fact that 42 per cent of managers said they had never (or had only rarely) engaged on public health issues suggests managers need to start considering wider social and environmental issues, LCP suggested.

Claire Jones, head of responsible investment at LCP, said: “It’s encouraging to see many investment managers stepping up to the plate. The majority are taking ESG issues and stewardship much more seriously, with many making their voices heard through voting and improving reporting on climate change ahead of it being a regulatory requirement. 

“However, it's concerning that there is a significant number who don’t have appropriate board oversight, which is out of step with the rapidly increasing expectations in this space.”