European asset managers, including Legal & General (LGEN), are well ahead of their US-headquartered counterparts in pushing companies to align with the Paris climate goals. That’s one conclusion of a damning report on the investment management sector’s efforts to engage on perhaps the most significant component of corporates’ so-called ESG (environmental, social and governance) standards.
In a survey of the world’s 15 largest asset managers, think-tank InfluenceMap found that US giants, including Vanguard, State Street, Fidelity and JPMorgan, lacked transparency in the way they engaged with companies to transition to a lower-carbon economy. US groups, including BlackRock and Capital Group, are also among those most opposed to climate-motivated shareholder resolutions, compared with broad support from European groups.
As the collective owner of vast swathes of public markets, the asset management sector is facing growing pressure to convince companies to articulate clearer roadmaps to a carbon-neutral future. The report found that the sector in general is failing to show “the kind of leadership at present…that the recent escalation in the urgency of climate change would apparently warrant”.
InfluenceMap also notes that the portfolios of the largest asset managers are “significantly misaligned with the targets of the Paris Agreement”, even under the International Energy Agency’s ‘Beyond 2 Degrees’ scenario. This is likely to be due to the sector’s focus on index-driven strategies, which compels many asset managers to reflect (rather than divest from) the universe of publicly listed stocks. The assets L&G currently owns and manages – including holdings in the automotive, power and fossil fuel industries – were found to be the least aligned with targets to reduce carbon emissions.
“If global investors wish to remain active in these sectors and at the same time show Paris alignment in their portfolios, then more robust engagement with the relevant companies should be a priority,” the report’s authors argue. “This engagement should likely focus on the twin goals of accelerating the individual corporate transitions to low carbon technologies and getting the companies to align their policy lobbying in line with Paris.”
