Most asset managers are "out of sync" with global efforts to address climate change and biodiversity loss, according to a ShareAction report released Monday.
The shareholder advocacy group collected data between July and November 2022 from 77 asset managers with a collective $77 trillion in assets under management, looking at their policies and practices on climate and biodiversity, including an assessment of risks and opportunities, and disclosure.
Asset managers were selected based on largest AUM size, with 39 managers from Europe, 25 from the Americas and 13 from the Asia-Pacific region.
Compared with a similar analysis in 2022, the "Point of No Returns" report found several good news/bad news dynamics in play.
On climate change, the report found that almost all the asset managers now have long-term net-zero targets, but with incomplete coverage of assets or omissions of Scope 3 emissions, and only 8% measure and set climate targets. They continue to invest in expanding fossil fuel production, and only 10 European managers have committed to restrict investment in the most harmful fossil fuels across all funds. Managers are also not investing enough in low-carbon energy opportunities, the report said.
Regarding biodiversity, three-fourths of the managers had no commitments to protect ecosystems from deforestation. While most of them had some assessment of biodiversity risk, few used the information to inform policies and targets, and few committed to address it, the report said.
"Asset managers' recognition of the importance of biodiversity has grown since our 2020 survey, but their responses to the biodiversity crisis remain considerably weaker than their responses to climate change," the report said, and in many cases, "firms have not yet understood the links between these issues."
While there has been forward movement with responsible investment practices on climate and biodiversity, there are more steps asset managers need to take, including developing detailed transition plans and comprehensive assessments of how investments impact nature, and how investments depend on nature, the report said.
It also criticizes asset managers for "blaming bad data in a way that doesn't stand up to scrutiny," it said. They spend resources collecting the data but are not using it, with less than a third reporting that the results inform their investment approach.
The report does commend some asset managers for various policies and practices on climate and biodiversity considerations in investment, practices, including Nordea Asset Management whose responsible investment strategies now represent more than 66% of its total AUM.
Regardless of the types of assets they manage and whether they take an active or passive approach, "asset managers need to use the huge power they wield through the investments they hold to bring about a meaningful transition to a clean and sustainable future," said Claudia Gray, head of financial sector standards for ShareAction, in a news release about the report.
