Less than one third of global asset managers are currently reporting against the Task Force on Climate-related Disclosures (TCFD) guidelines, according to a recent study carried out by Redington’s manager research team.
The survey, which questioned 104 asset managers from across the globe running combined assets of more than $10trn, found that in general, participation in climate initiatives among global asset managers was lacking.
Just 29% of the managers questioned have joined Climate Action 100+ and only 22% are members of the UN Global Compact, for example. The only outlier in this field were the UN Principles for Responsible Investment, which have seen an 84% participation.
However, there is light at the end of the tunnel, with the results showing that half of the managers surveyed are considering adopting the TCFD guidelines in their reporting procedures in the future.
In addition, though the guidelines are voluntary at this stage, Redington pointed out that the UK government demands all listed companies and large asset owners disclose in line with TCFD recommendations by 2022, and therefore expects to see “significant progress” in this area. Redington itself has committed to reporting in line with the TCFD recommendations in 2021.
Lack of engagement
Meanwhile, the research also found that more than a third of respondents (39%) could not provide an example of climate change-related engagement with the companies they invest in, while just 62% have an ESG engagement policy in place.
According to the study, which consisted of 96 questions across ESG-related topics, global assets managers are failing to pay appropriate attention to two key areas: climate change and diversity, with a focus on race and gender.
For example, despite three quarters (76%) of managers surveyed saying they consider climate related risks and opportunities, just 60% were able to provide an example of when these factors have actually influenced buying or selling decisions.
Nick Samuels, head of manager research at Redington, said: “Climate change is a widespread and global problem, impacting all sectors of the economy in one way or another. We would expect all our managers, regardless of asset class, to have at least one, if not several, examples of climate change related engagements with their portfolio companies.
“Managers who thoroughly analyse – and take action on – risks are crucial to driving progress so, moving forward, we strongly hope to see this number increasing.”
Leading by example
In the report, Redington also outlined its firm belief that it is in a position to help drive positive change when it comes to ESG in the asset management industry.
CEO Mitesh Sheth said: “We need to play a more active role in working with others to ensure they retire into a sustainable and stable world. There will be difficult decisions to make along the way, and uncomfortable changes to undertake.
“We believe it is worth it in order to achieve our goal, because if we do what we’ve always done we’ll get what we’ve always got.”
Samuels added that while the positive momentum is there, “we simply have to raise the bar on climate change”.
“Investors have the power to push for real action from policy makers and businesses to address a whole range of issues that fall under the banner of ESG,” he said.
“As an industry, we have a responsibility to ensure they have the tools and knowledge to properly address the climate related risks that arise in their portfolios.”
The firm itself is leading by example through making climate a key issue across its business. For example, in April the firm “convinced [its] building manager to switch to 100% renewable electricity by 2022”.
It has also started engaging green couriers for shipments within London to reduce pollution and is gradually shifting its in-house catering towards a plant-based diet.
In addition, this year Redington appointed three full-time, dedicated employees to focus on ESG issues and added a dedicated ESG team to its existing responsible investment committee.
The firm said it is committed to having more conversations with businesses around these topics and pushing for more transparency across the board.
Samuels said: “As a research team, when we are evaluating a manager’s ESG performance, we assess three key dimensions; the depth and impact of the manager’s engagement, the integration of ESG factors in the investment process and philosophy, and the manager’s reporting capabilities of non-financial metrics.
“Through this in-depth due diligence, we are looking to identify those managers who are best suited to offer transition-ready portfolios.”