Despite climate change having risen up high on the global agenda before and since the 2015 Paris Agreement resulted with a plan to mitigate greenhouse gas emissions, a new study of asset managers globally collectively managing in excess of $10 trillion of assets under management (AUM) has found that well over a third of respondents were unable to provide an example of a climate change-related engagement efforts.
This came despite just under two-thirds of the sample of managers surveyed having an environmental social governance (ESG) engagement policy in place, according to United Kingdom-based investment consultant Redington’s research team.
Moreover, while three quarters of the survey respondents indicated that they consider risks and opportunities related to climate change, this latest analysis finds that only 60 percent can actually provide an example of when these factors have actually influenced buying or selling decisions. As such, greater attention to climate change engagement would seem to be clearly needed.
Nick Samuels, head of manager research at Redington, which has offices in London, Bristol and a presence in China, noted that “the discrepancy highlights a significant industry issue” that, despite engagement seemingly increasing, it has not yet fully translated into concrete and consistent portfolio decisions.
Commenting in the wake of the findings, Samuels, who previously worked at Schroders on the Asia and Emerging Market equity teams and for U.S. multi-manager SEI Investments, said: “Climate change is a widespread and global problem, impacting all sectors of the economy in one way or another. We would expect all our managers, regardless of asset class, to have at least one, if not several, examples of climate change related engagements with their portfolio companies.”
He added: “Managers who thoroughly analyze – and take action on – risks are crucial to driving progress so, moving forward, we strongly hope to see this number increasing.”
The firm interviewed a total of 104 managers from across the globe including in the U.S. (conducted anonymously), representing over $10 trillion in combined AUM, on a vast spectrum of areas relating to ESG.
With global momentum around climate change quickly rising, Redington asserted that all players in the global economy – including investors, asset managers and investment consultants – “must be prepared to play their part in the U.K.’s transition to a low carbon economy.”
“While the positive momentum is clear, we simply have to raise the bar on climate change,” Samuels stressed adding that: “Investors have the power to push for real action from policy makers and businesses to address a whole range of issues that fall under the banner of ESG.”
As for the global financial sector, the Redington research head underlined the message that it has “a responsibility” to ensure they have the tools and knowledge to properly address the climate related risks that arise in their portfolios.
There also needed to be a fundamental shift in conversations to “push companies for better transparency on their environmental footprint,” the firm contended, which will allow for better quality carbon data and access to potentially relevant climate change and other environmental metrics.
Elsewhere, Redington’s research highlighted that only 28 percent of asset managers surveyed were currently reporting against the Task Force on Climate-related Disclosures (TCFD) guidelines.
However, the firm does expect to see “significant improvement” in the coming months, with half of the managers surveyed currently considering adoption of the TCFD guidelines in their reporting procedures.
Samuels further explained: “As a research team, when we are evaluating a manager's ESG performance, we assess three key dimensions; the depth and impact of the manager's engagement, the integration of ESG factors in the investment process and philosophy, and the manager's reporting capabilities of non-financial metrics. Through this in-depth due diligence, we are looking to identify those managers who are best suited to offer transition-ready portfolios.”
Nevertheless, he pointed out that the need for education and action is not limited to the asset management community.
“While we [Redington] are committed to challenging managers on the quality of their climate change risk management, tackling these issues is a key priority for all of us,” Samuels posited. “And, as an industry, we must look to continually grow and deepen our expertise on these matters. The pivotal role financial institutions have to play in shaping the world of tomorrow cannot be underestimated, and we must embrace the responsibility that comes with it.”
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A freelance financial journalist based in London and a former Financial Times staff writer covering stock exchanges, transaction services and trading technology, Roger Aitken has written for a number of B2B and B2C titles such as City A.M., Investors Chronicle, FTfm and Financial News as well as newspapers like The Guardian, The Independent and with Forbes as a contributor.