ShareAction has set out four criteria it sees as leading practice on decarbonisation in a bid to highlight the key areas where it believes asset managers can achieve positive effects in addressing climate change as net-zero commitments proliferate across the industry.
The four criteria are committing to net-zero emissions across all assets under management by 2050 at the latest; setting interim targets for emissions reductions for 2030 at the latest; taking into account scope 1, 2, and, where material, scope 3 portfolio emissions; and being consistent with emissions pathways identified in the IPCC special report on global warming of 1.5°C.
Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by a company. Scope 3 includes all other indirect emissions that occur in a company’s value chain.
A new report from ShareAction highlights Bank J. Safra Sarasin as an industry leader in this area, having made a pledge to reach a carbon-neutral outcome in all assets under management by 2035. On biodiversity, ACTIAM is praised for committing to a portfolio-wide target of no net biodiversity loss by 2030.
The report highlights what ShareAction describes as ‘promising developments’, including Aviva Investors voting against directors of CA100+ companies yet to set a science-based target; RBC Global Asset Management generally supporting proposals asking companies to abstain from operating in or using materials extracted from environmentally sensitive areas; and NN Investment Partners will vote against directors at companies at risk of violating the United Nations Global Compact.
But ShareAction also highlights industry resistance from many asset managers who are withholding support for ESG resolutions on the basis that they are engaging privately with the companies in question.
Isobel Mitchell, report co-author, says: “This is flawed reasoning. Engaging without voting is ‘tea and biscuits’ engagement, providing little incentive for investee companies to change. Asset managers must back up private engagement by voting for ESG resolutions to avoid sending mixed messages.”
Overall ShareAction argues that the body of evidence showed promising examples of progress by some asset managers. In particular, the fund managers most frequently cited throughout the leading practice guide were BNP Paribas Asset Management, NN Investment Partners, AXA Investment Managers, Robeco, and Legal & General Investment Management.
But the NGO emphasises that no single asset manager comes close to implementing leading practices across all four topics.
Mitchell says: “Current leading practice is still a world away from what is needed of the sector to meet the challenges presented by the systemic risks considered in this report.”
Willis Towers Watson global head of research Luba Nikulina says: “As a key link between asset managers and their asset owner clients, we welcome this leading practice guide that not only evidences what good looks like on responsible investment by asset managers, but outlines clear suggestions for where the sector needs to head next. The checklist is a helpful practical resource for not only benchmarking performance, but framing important discussions with asset managers.”
Friends Provident Foundation investment engagement manager Colin Baines says: “We welcome the publication of this leading practice guide, which will enable asset owners to better hold managers to account by demonstrating that positive changes are not just possible but have already been implemented by their peers. The guide reinforces the key messages in our own sector assessment, especially around stewardship and voting and the need for stronger commitments across both. We encourage asset owners to use the checklist to set strong expectations for their asset managers on authentic responsible investment.”
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