The final issue explored in the survey is the role of the asset manager in encouraging better behaviour from the companies in which they invest. The importance of this role is well understood by senior management. As Valérie Baudson, chief executive of Amundi, told Funds Europe recently: “As asset managers, we know that the pool of money that we manage is incredibly important and that it can have an impact on society.
“Given the size of this pool of money [roughly $100 trillion across the industry], we believe that if we channel it to the right projects and to the right companies, and try to encourage the companies that are moving in the right direction in terms of energy transition and social issues, we can have an impact. That’s why I feel a personal commitment to this,” said Baudson.
Part of this commitment involves holding companies or bond issuers accountable to their climate targets, although the survey shows that there is still some way to go in terms of how asset managers go about this task (Q26).
Almost a third (31.5%) set regular due diligence reviews throughout the year with company’s senior management while 28% rely on third-party data sources to validate a company or bond issuer’s progress.
More worrying is the fact that 17% of respondents rely on a single annual due diligence review, while almost a quarter (23.5%) don’t currently have any policies in place.
This is surely an approach that will not be tolerated by investors that are taking an increased interest in the stewardship and voting record of their asset managers.
When asked about their policies on voting and stewardship (Q27), almost half (46.5%) said that they look to align their voting policies with their own climate and sustainability strategy. Almost a third (32%) reflect their clients’ views on sustainability in their voting, while 21.5% engage with other industry stakeholders to help inform their voting policy.
Voting policies are coming under increased scrutiny from investors. For years the lack of transparency around the proxy voting process has been an intense frustration for institutional investors and asset owners, who have not been able to tell if their vote was even cast, let alone how it was cast.
But a number of digital proxy voting solutions are now in the market, bringing much-needed transparency and greater demand for more information from investors into stewardship.
This is especially true for any companies with exposure to fossil fuel, where the argument of divestment versus engagement is very much to the fore. In general, the majority of asset managers currently favour engagement. When asked, the most popular approach to investing in fossil fuel industries (Q28) involves an active engagement process around how these companies are moving to net zero (42%).
This is twice as many as those with an active policy of divestment (22%), while 16% base their engagement more on governance than anything climate-specific.
Many of the biggest asset managers seem reticent to take a divestment-first approach to fossil fuel companies. BlackRock chief executive Larry Fink in his annual letter to shareholders in January 2022 made this point. “Divesting from entire sectors or shifting carbon-intensive assets from public to private markets will not get the world to net zero,” he said.
However, engagement without the threat of divestment may not be the most effective strategy, as Laurent Ramsey, chief executive of Pictet Asset Management, told Funds Europe.
“Engagement is also part of our duty as active managers and a source of alpha creation if done well,” said Ramsey. “But for effective engagement, you need to formalise it, you need a timeline and if you see no progress, you need to divest from these companies. Otherwise, it can be a never-ending friendly discussion that ultimately goes nowhere.”
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2: Creating a climate risk framework
3: Importance of investment risk overlooked
4: Internal governance still developing
5: Education and skills are key
6: Data availability challenge misplaced
9: Engagement vs divestment
10: Recommendations and regulation
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