U.S. Asset Managers Are Falling Behind on Their Own Climate Goals
A report by InfluenceMap suggests that “anti-ESG” rhetoric and actions are causing U.S. asset managers to dial back their efforts to reduce climate change.
More than 300 investment firms have joined the Net Zero Asset Managers initiative since it launched in December 2020, pledging to support a goal of net zero greenhouse gas emissions by 2050. They might be well intended, but few of the largest ones are doing a stellar job and U.S. managers appear to have lessened their overall support, reversing an upward trend, according to a report by InfluenceMap, a nonprofit think tank focused on climate change.
For its fourth annual report, the think tank evaluated the world’s 45 largest firms, managing an aggregate of $72 trillion in assets, based on three criteria.
Each manager analyzed is given a Portfolio Paris Alignment Score that measures how well their equity portfolios ($16.4 trillion in assets) are aligned with the net zero goals. Collectively, the group of managers has 2.8 times more equity value in fossil fuel production companies ($880 billion) than in green investments ($309 billion). Only two firms — Natixis and Schroders — received positive scores. Managers are also given a score based on their climate-related investment stewardship. In 2022, fewer managers received good marks. There were only eight A-rated asset managers — defined as those “carrying out truly ambitious and effective climate stewardship practices relative to best practice” — 45 percent fewer compared to 2021.
Average asset manager support of climate resolutions presented to corporate boards had grown from 35 percent in 2019 to 61 percent in 2021. However, average support fell to 50 percent in 2022. “Stewardship efforts appear to have stagnated,” the report said.
A third score is given to asset managers for their direct and indirect engagement in climate-related public policy. The report claims that support for climate-related policy is “largely absent” and points out that 86 percent of the asset managers are members of at least one industry group “opposing sustainable finance policy required to enable decarbonization pathways.”
The rating system is imperfect. For example, the portfolio analysis doesn’t include fixed-income or alternative investment portfolios. Assets managers have also said they are supporting fewer climate resolutions presented to corporate boards because proposals have become too prescriptive.
InfluenceMap says together the three scores “still provide a holistic view that allows analysis of these companies and makes the assessment valuable.” Daan Van Acker, a program manager at InfluenceMap, said, “I agree that, to some extent, it’s still a limitation of the methodology. But we do think nonetheless that it’s valuable information and a valuable assessment.”
Among other findings, the latest report showed something troubling: U.S. managers appear to have lessened the support of their climate goals, reversing an upward trend in previous years.
Van Acker said that InfluenceMap observed the rise of support for environmental, social, and governance factors when investing, then the resistance to it (including divestments from certain managers by some institutional investors and legislation), and ultimately the backlash to the backlash.
BlackRock chairman and CEO Larry Fink has borne the brunt of a politicized debate over ESG investing principles and regretted it, but he reiterated BlackRock’s support of sustainability in his widely read annual letter this spring. Institutional investors are also asking what they could have done differently to head off ESG backlash.
But what real impact the “anti-ESG” rhetoric and actions would have on its latest report, InfluenceMap was eager to see, Van Acker said. The think tank was not surprised when the data was analyzed.
BlackRock, Vanguard, Fidelity Investments, and State Street Global Advisors all received a FinanceMap Stewardship Score of C+ or lower, “indicating a lack of effective climate stewardship processes and use of shareholder authority to engage companies to transition,” according to InfluenceMap’s latest report. (Fidelity Investments and Vanguard are not members of the Climate Action 100+ process and the Net Zero Asset Managers (NZAM) initiative, following Vanguard’s departure from NZAM in December 2022.)
“While U.S. managers continue to lag European asset managers — which has kind of historically been the case when it comes to climate — we did see more of a positive trend [in recent years]. where some of the largest asset managers were starting to steward more around climate. Now there is somewhat of a reversal of that starting in 2022 and carrying over in terms of this year as well,” Van Acker said.