The asset management industry is overlooking what promises to be a major new ESG risk: biodiversity.
A fresh analysis by nonprofit ShareAction found that only 10% of the asset managers it surveyed say they have a dedicated biodiversity policy covering all their portfolios.
“Even the top-performing asset managers in the survey have a biodiversity blind spot, often failing to take into account the protection of important habitats such as forests, rivers and oceans when managing their investments,” said Claudia Gray, head of financial sector research at ShareAction.
The study, which looked at firms representing a combined $77 trillion in client assets, comes roughly two months after the COP15 agreement put biodiversity firmly on the investing map. Hailed as a deal with similar significance to the 2015 Paris climate agreement, the COP15 accord struck in December has the potential to change the regulatory landscape so that investment managers will no longer be able to ignore biodiversity.
For now, very few asset managers are meeting the moment. ShareAction found that 40% of the firms it surveyed don’t monitor whether investee companies operate in areas of global biodiversity importance. A fifth monitor the metric, but don’t impose any restrictions.
Meanwhile, there’s evidence that corporations and those funding them have contributed to the destruction of the world’s natural resources, with animal populations dropping by an estimated 69% since 1970.
ShareAction found that 34% of the asset managers it surveyed said biodiversity was included in their general responsible investing policy. At the same time, hardly any investments target biodiversity, according to a separate report by Morningstar Inc. The researcher identified only 14 funds with $1.6 billion of combined assets that have strategies based on biodiversity, in a December report.
Overall, the asset management industry continues to trail on environmental, social and governance metrics, the ShareAction survey found. Fidelity Investments and Vanguard Group were among firms at the bottom of its ranking, which measured performance on climate, biodiversity, social and corporate governance issues, as well as stewardship standards.
A spokeswoman for Vanguard said the company has a “singular focus on client outcomes” and it evaluates “the implications of financially material risks, including environmental and social risks, on long-term portfolio performance across Vanguard’s line-up of high-quality, low-cost funds.” For those investors who want to invest in line with their ESG preferences, Vanguard offers ESG index and active funds with different ESG strategies, she said
Fidelity officials weren’t immediately available to comment.
Across the wider industry, firms are “typically doing nowhere near enough to address the most dangerous human and natural crises of our time,” ShareAction said. “We are running out of time to act on these global problems if we want to avoid catastrophes.”
ShareAction said European asset managers significantly outperform their counterparts in the US and Asia. Robeco, a Dutch investor owned by Orix Corp., earned the highest score, followed by BNP Paribas Asset Management, Aviva Investors and Legal & General Investment Management.
The results “show that investing can be both responsible and profitable, even for those managers of a considerable size,” ShareAction said.
The nonprofit, which has coordinated climate change and nature-related shareholder resolutions at companies from Barclays Plc to Glencore Plc and Tesco Plc, said there were also some “surprising and inspiring green shoots of progress.” These included significant improvements compared with 2020 in the rankings of the asset management unit of JPMorgan Chase & Co., it said. Its higher ranking in the latest survey followed the firm’s adoption of better investing frameworks for their climate-related investments, ShareAction said.
BlackRock Inc., the world’s biggest money manager, was among firms in the second-lowest category, as were Capital Group, State Street Global Advisors and Franklin Templeton.
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