Asset managers worldwide have made little notable progress in achieving their sustainability goals since 2021. Particularly in the United States, parties are becoming less inclined to persuade companies in their portfolios to move away from fossil fuels.
As much as 95 percent of portfolios are not aligned with the Paris Climate Agreement, it is is revealed in a report by InfluenceMap, which examined equity portfolios of the world’s 45 largest asset managers with a total of 16.4 trillion dollars in assets under management. For instance, asset managers still invest approximately 880 billion dollars in companies producing fossil fuels, while green investments account for only 309 billion dollars in total.
The United States and Japan are lagging behind in this regard. Asset managers in the United States are becoming less willing to invest sustainably, despite a modest momentum seen in 2022 that has now dissipated. U.S. states are increasingly passing anti-ESG laws that prohibit funds from investing based on ESG factors. This has caused frustration among major Dutch investors, who observe that several Anglo-Saxon asset managers currently prioritize financial returns over the energy transition, as evidenced by their selection of oil and gas companies.
Natixis and Schroders set good example
Smaller European asset managers, such as Natixis and Schroders, set a good example, according to the InfluenceMap report. For instance, Schroders and BNP Paribas Asset Management have nearly three times as many green investments in their portfolios compared to the average asset manager. On the other hand, large American and Japanese firms like Mitsubishi Financial and BNY Mellon perform poorly in this aspect, and Goldman Sachs and State Street also have significant exposure to fossil fuels.
Furthermore, major investors are less inclined to support climate plans of companies during shareholders› meetings. In 2021, the average asset manager approved 61 percent of sustainable resolutions, whereas in the previous year, this figure dropped to 50 percent. Again, U.S. parties are the culprits, as they, on average, only approved 36 percent of green agenda items, compared to 50 percent in 2021.
Morningstar arrived at a similar conclusion earlier this year in a study of the voting behavior of the ten largest asset managers during shareholders› meetings. Anne Lafarre, who conducts research on asset managers› voting behavior from Tilburg University, said earlier this year in an interview with Investment Officer, « ‹Green› language in asset managers› shareholder letters has been replaced by a more nuanced tone.»
Energy profits boosted dividends
Non-profit organization Share Action attributed the decreased support in its Voting Matters report in January to record profits of energy companies following the war in Ukraine, which led to higher dividends and buybacks for shareholders.
InfluenceMap now concludes that these parties are not using their role as significant shareholders to actively support companies in the sustainability process. Its report found a significant gap between the increased net-zero promises of the world’s largest asset managers and their unwillingness to take action in the short term. Influencemap said managers need to examine themselves and review their investment policies to actively support companies in the energy transition.
«It is not enough to demand that companies reduce their emissions or set strategies to achieve this goal,» said Christina Herman, senior director of the Interfaith Center on Corporate Responsibility. «If major investors believe that companies should become more sustainable, they must also contribute their part.»