More than two-thirds of the $36trn of assets held by some of the world's largest asset managers are being managed by responsible investment "laggards" and poor performers, while the industry currently has no stand-out leaders in the space, research shows.
Pressure group ShareAction's Point of No Returns report, published on Monday (9 March), reveals the extent to which 75 of the world's largest asset managers are failing to demonstrate leadership with regard to the risks and opportunities presented by climate change.
The assets held by the "laggards" - the very worst performers showing the weakest responsible investment performance - are greater than the combined GDP of the US and China, with half of the firms surveyed showing a "weak" approach to responsible investment and 17% showing a "limited" approach.
ShareAction's report found that failings in responsible investment capabilities are particularly prevalent among the world's largest asset managers, with the six largest firms all being awarded the two worst possible rankings. On the other end of the spectrum, some firms "with smaller AUM" are showing leadership.
Five firms achieved "leader" status. However, not a single asset manager surveyed "demonstrates leadership across its investment approach", according to the group, with no firm being awarded the best possible "gold standard rating".
With regard to risk management, ShareAction warned that asset managers "currently fail to grasp the systematic threat posed by biodiversity loss", and many are not taking "basic steps" in managing climate risks in general.
The report also highlighted failings on stewardship and engagement standards, with most firms managing voting policies that include no specific commitments to climate, human rights, labour rights or biodiversity.
In addition, only 45% of firms publish proxy voting records.
Governance standards were also found to be poor, with 80% of firms surveyed having no board-level accountability for responsible investment and just 7% of firms with financial incentives linked to responsible investment.
As has been highlighted in past research, European firms continue to lead US and APAC counterparts in terms of responsible investment standards.
Fewer than $1trn of the $13.7trn of assets managed by the worst performers are based in Europe.
Within the rankings, the different attitudes to responsible investment based on geography is clear even within fund groups.
For example, BNY Mellon Investment Management's UK-based boutique Insight was awarded a higher ranking than US-based Mellon Investments.
In addition, UK-based Fidelity International is ranked comfortably higher than its US-based sister company Fidelity Investments, which with $2.4trn AUM is at the bottom of the rankings.
Commenting on Vanguard's position as a laggard, a spokesperson said the firm's stewardship team is "taking action to address climate change risk" and pointed to the firm's involvement in initiatives such as the UN Principles for Responsible Investment (UNPRI).
Similarly, a spokesperson for PGIM Fixed Income said the firm is "strongly committed to a substantive ESG approach", and pointed to a positive assessment from the UNPRI in 2019.
However, every one of the bottom-performing firms is a member of the UNPRI, which ShareAction said reflected the fact that many asset managers "use the initiative as a tick box exercise".
A spokesperson for Credit Suisse AM said it is in the process of repositioning "a large part" of its actively managed strategies towards ESG, targeting CHF 100bn (£81bn) of assets by the end of 2020, with the "launch of new sustainable and impact products… ongoing".
However, ShareAction noted the "majority of asset managers offer a selection of sustainable financial products" but this is "not indicative of their overall commitment to responsible investment".
The world's largest asset manager BlackRock, which has faced heavy criticism in recent years on its ESG credentials, escaped the report's very worst rankings.
BlackRock was, however, among the firms labelled as having "little evidence to suggest adequate management of material responsible investment risks and opportunities".
BlackRock, which saw CEO Larry Fink commit in January to embrace sustainability as the "new standard" for investing, declined to comment.
A spokesperson for T.Rowe Price said the "constraints" of ShareAction's survey "do not adequately reflect the efforts undertaken by asset managers, nor explain how they are integrating ESG", adding that the firm is "investing heavily in people and technology to enhance our firm-wide ESG capabilities."
J.P. Morgan Asset Management declined to comment.
Passive no excuse
All five of the top-rated firms in the research are from Europe and include the only firms to be given a top rating on specific metrics; BNP Paribas Asset Management received a top ranking for responsible investment governance and biodiversity, while Robeco received top rankings for human rights and biodiversity.
Notably, despite the perceived wisdom, the report found that a passive investment strategy "does not prevent a manager from having a leading approach" to responsible investment, evidenced by the "leader" ranking given to Legal & General Investment management.
ShareAction said: "Passive managers can position themselves as active stewards. Credibility on stewardship is fast becoming a key competitive differentiator among passive managers."
LGIM's director of investment stewardship Sacha Sadan added: "Regardless of our investment strategy, ESG issues are taken seriously at LGIM. Whether it is voting against climate laggards under our climate impact pledge or our work on inclusive capitalism, this is true from the top to the bottom of the business.
"There is always more to be done and we will continue to work hard for our clients holding companies to account."