In a damning report unveiled this week, non-profit organisation ShareAction exposed that a mere 10 out of 77 asset managers worldwide have taken steps to limit investments in the most damaging fossil fuels across all their investment funds. The report, which delved into the practices of major global asset managers, urged the firms to urgently confront the challenges of climate change and biodiversity loss by reassessing capital allocation strategies and engaging with the companies they invest in.
ShareAction’s comprehensive 65-page report emphasized the need for clear commitments from the industry to curb biodiversity loss and establish emissions targets that align with efforts to limit global warming to 1.5 degrees Celsius.
The researchers highlighted the insufficient attention given by asset managers to climate-related opportunities and the lack of robust investment objectives in this critical area. While many firms have set long-term net-zero goals, ShareAction contends that these targets are fraught with inconsistencies and fail to demonstrate sufficient strength.
“Several targets lack the necessary clarity and commitment, presenting inadequate plans to achieve the desired outcomes or, in some cases, excluding the possibility of expanding their commitment to cover 100% of their Assets Under Management over time,” the report stated, raising concerns over the efficacy of these measures.
Vanguard
ShareAction highlighted Vanguard, the world’s second-largest asset manager, as an example. Vanguard’s goal of achieving net-zero emissions by 2050 applies to only 17% of its assets under management. “Vanguard justified its limited scope by its predominantly passive model, yet other predominantly passive asset managers (such as Sumitomo Mitsui Trust Asset Management and Legal & General Investment Management) have set strong targets,” the report said.
Regarding investments in fossil fuels, only 10 asset managers out of the 77 respondents have committed to limiting their investments in coal and unconventional oil and gas for all funds. However, the researchers express scepticism even about the commitments made by these ten European fund houses.
The restrictions vary from “strong absolute limits to weak threshold-based limits, such as 30% of total revenue.” The report adds, “exceptions to these restrictions on the basis of geography (e.g. permitting thermal coal investment in Germany for a limited amount of time) or on a firm-by-firm basis (through an exceptions process and/or committee).”
Exclusions limited
According to the research, many more firms have exclusions on coal (77%) or unconventional oil and gas (62%), but these restrictions apply only to a small portion of their funds. “This fraction can vary from a single digit number of funds to a majority of overall AUM. The strong consensus on the harm these fuels cause, and the fact most asset managers in our sample have implemented at least some restrictions, suggests there is potential to strengthen existing restrictions, and to impose them across a wider range of funds or launch new funds incorporating strong restrictions.”
Despite the International Energy Agency’s statement that investments in the expansion of oil and gas are incompatible with the 1.5-degree pathway, ShareAction finds that very few asset managers restrict their investments in companies pursuing new oil and gas projects. Only 13% of asset managers have explicitly stated that they impose exclusions on the expansion of fossil fuels, but almost all of these restrictions apply only to funds with an ESG label and therefore have limited impact, the report noted.
SEB Investment Management
The researchers identify SEB Investment Management and MN as having the strongest exclusion policies. “SEB Investment Management’s almost blanket fossil fuel exclusion policy implicitly restricts funding fossil fuel expansion in most cases and across all funds, though it does potentially allow exceptions. MN excludes companies involved in fossil fuel production from all investments on behalf of one of its two major clients (Dutch pension fund PME).”