UK asset managers are beating the global average in terms of ESG activities and reporting, but there is significant work to be done in terms of their environmental policies, research from EY has found.
The group has ranked 1,100 publicly listed financial services firms across the world on ESG activity and disclosure metrics for its EY Sustainable Finance Index. Data is collated across a wide range of sustainability metrics and a score out of ten is assigned on progress towards goals, as well as measuring the extent of disclosure on activity, expressed as a percentage.
Although EY said individual firms in the index are anonymised, from a sector perspective independent UK asset managers included the index, which manage a total AUM of £2.5trn, are among the leaders leading for incorporating environmental and societal practices and governance systems into their operations, and come fourth across the world – in joint place with Jersey – for their rate of disclosure against such activity. First was Bermuda, followed by Hong Kong and New Zealand.
For 2019/20, listed UK asset managers scored 6.6 out of a possible 10 for ESG activity currently carried out and reported on, compared to the global average of 5.6. Furthermore, against over 200 parameters tracked by the Index, UK asset managers’ rate of disclosing ESG data is 60%, which is higher than the global benchmark of 50%.
Gill Lofts (pictured), UK sustainable finance leader and head of wealth and asset management at EY, said various policies and initiatives have played a part in this data.
“The Stewardship Code has driven material progress on ESG disclosure from UK players, and the Bank of England’s emphasis on supporting the transition to a carbon neutral economy, as well as the recent calls from the chancellor for the City to be a leader in green finance, highlight that there is momentum and motivation. Alongside regulation and government-led initiatives, we are increasingly seeing firms challenge themselves to change how they operate and align more positively to ESG metrics – we must maintain momentum here to drive lasting progress.”
However, she highlighted that the UK scoring 6.6 out of 10 meant there was still significant work to do and challenges ahead. “The asset management industry should be commended for its governance structures and the progress made to date on the environmental front, but this index demonstrates that across all business, for a greener tomorrow, there remains a path to be travelled,” Lofts added.
In particular, the UK market scored 4.8 out of 10 for its environmental polices with a disclosure rate of just 33%. This is higher than France and Switzerland, but when it comes to making proactive investments in environmental decision-making, the UK fell behind with 22% compared with 40% in France.
Furthermore, over half of the UK asset management firms covered in the index do not report on key physical footprint measures, including waste levels or energy consumption, and none of the firms report their environmental expenditures. None of them reported having active recycling programmes or initiatives to reduce environmental impact – but this mirrored a similar story for Germany and Switzerland.
Lofts commented: “For the most tangible improvement on the green agenda, UK asset managers still need to increase their focus on positive climate change action – and to report on it more comprehensively. There are of course discrepancies within the market, as many smaller players are unable to allocate the same level of budget as their larger peers to drive progress, but they hold the advantage of being nimbler and quicker to market. So, with the same end goal in mind, every firm can play a part in creating a more sustainable tomorrow.”
Diversity and inclusion
UK asset managers also fell down in terms of diversity with women currently making up 33% of board members – compared to 44% in Norway and 43% in France. Norway was the highest scorer overall when looking at data around policies and targets in place on diversity, opportunity within the workplace and the gender balance of managerial roles, achieving 5.1 out of 10, which compares to the UK’s 3.9 score and US’s 2.3 score.
Julian Young, UK asset management assurance partner at EY, commented: “Asset managers know they need to dial up change on their industry-wide gender imbalance. It is well-acknowledged that diverse teams drive stronger performance: it is not only the right thing to do, but it makes commercial sense.
“There are numerous ways to support this, with flexible working high on the list. Post-pandemic, the argument for more traditional working models has weakened, as many functions proved that they could operate to the same high levels virtually. With strong evidence to support the claim that flexible working can result in more women achieving and being retained at senior levels, this is a key area asset managers should look into.”