Hold asset managers accountable for delivering net zero

'Simply relying on stewardship and engagement teams at asset management companies is not enough for robust climate risk management'

The current landscape is full of asset managers publicly committed to delivering net zero. Resource and time-poor asset owners are in some cases being lured into a false sense of security on climate goals. There is a temptation from asset owners to believe nothing needs to change from their side because asset managers are already publicly committed to being successful engagers.

But this line of thought is potentially reckless. Without oversight and direction from the asset owners themselves, the transition to net zero will be so much harder to achieve.

Stewardship is a key mechanism for tackling climate change and actually delivering on the transition to a net-zero world. As an industry we have to recognise the systemic challenges facing us in relation to climate change, and work together for better outcomes.

Many asset owners do not have the resource to engage with companies themselves so carry this out through their asset managers, but they should not blindly rely on managers to shoulder all of the responsibility.

Collaboration is key

Collaboration is vital in working towards climate goals. Simply relying on stewardship and engagement teams at asset management companies is not enough for robust climate risk management.

Asset owners have a duty to empower themselves with the knowledge and understanding of their own climate goals – and the best way to reach them – in order to inform their asset managers on what is expected from them.

Resources are becoming more readily available for asset owners to build this understanding. When both owners and managers are aligned on climate goals they can work together to set key milestones and plan where resources should be focused.

Collaboration can, and will, look different on a case-by-case basis. One way to engage with asset managers is through an annual responsible investment survey. The purpose of this is to better understand what managers are focusing on in terms of stewardship and engagement – and inform them where we believe improvements should be made.

Hold managers accountable

Although collaboration is important, asset managers also need to be held accountable to increasingly high standards to prove they are acting in the best interests of their clients. The bar for what we expect from managers when it comes to sustainability will be continually raised. Today, for a manager to be considered a sustainability leader, there needs to be clear firm-wide commitment to stewardship, climate change, and diversity and inclusion.

We are continuously seeking managers with top-down commitments reflected through bottom-up real-world actions that are evidenced and measured. A firm’s sustainability beliefs and expertise should be integrated in all investment decisions taken up across the investment teams. 

Although many asset managers are engaging on climate change issues, more engagement across asset classes and sectors is needed. It is crucial for investors to keep pushing companies for better carbon data and continual improvements.

We all need to collaborate with the asset management industry to guide its engagement efforts, however we expect managers will use engagement expertise as a means of a competitive advantage, in which case, they make themselves accountable to ever-improving standards.

Navigating and achieving the transition to net zero is going to be extremely challenging. Government and policy maker action will be essential, but investors and asset owners also have a vital role to play.

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Natasha Turner

Natasha is global deputy editor at ESG Clarity, part of the Bonhill Group, and has been a financial journalist for six years. She has been shortlisted for Story of the Year and Investment Journalist of...