New research from Pensions for Purpose suggests that active asset managers opt for an easy life as most do not use climate benchmarks, despite their funds being labelled as ‘climate-focused’.
The research was conducted among 24 leading asset managers representing over $32 trillion in assets under management, which offer climate-focused funds to UK pension schemes. Climate benchmarks give managers specific objectives related to the greenhouse gas emissions in a fund’s portfolio.
Almost all (92%) of active managers don’t use climate benchmarks, while 81% of passive managers do.
Instead, almost three quarters (73%) of active climate-focused funds benchmark against the market capitalisation index rather than a climate index, from both a financial and climate impact perspective. A further 19% of active climate-focused funds do not have any benchmark.
Overall, 49% of all climate-focused funds analysed don’t use a climate index benchmark.
Karen Shackleton, chair and founder of Pensions for Purpose, said: “The question this raises is whether active managers could set a higher bar when considering their carbon footprint by benchmarking against a climate index rather than comparing themselves with the market capitalisation index, which has much higher carbon metrics, even if they keep the market cap index as the performance benchmark.”
According to the research, 142 different climate-carbon benchmarks are used across just 212 funds. No commonality in the choice of the benchmark used makes it harder for investors to compare one fund against the other when making a fund selection decision.
The research also showed the unexpected impact on carbon metrics when shifting from Low Carbon to Paris Aligned benchmarks. A pension fund investor could experience an increase in carbon footprint if relying on the same metric to evaluate performance against carbon objectives, according to Pensions for Purpose.
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