Top global asset managers lagging on ESG performance
Some of the world’s largest US-based global asset management firms are among the poorest performers in ESG practices as European funds continue to outperform globally, according to responsible investment group ShareAction.
The four biggest asset managers – BlackRock, Vanguard, Fidelity Investments and State Street Global Advisors – were among the 35% of funds that received the lowest D or E grade. This means that the world's most influential managers are performing "worst in class", according to the report.
ShareAction ranks 77 major asset managers in order of their ESG investment policies, which encompass climate, biodiversity, social, governance and stewardship. These firms combined manage more US$77trn in assets.
“That's very concerning to us given the outsized influence that these asset managers tend to have on real-world companies,” Abhijay Sood, financial sector research manager at ShareAction, told IFR. “Their funds sometimes control more than a quarter of a company,”
European asset managers continue to lead their US counterparts in ESG policies, dominating all top ten spots. The Netherlands’ Robeco, France’s BNP Paribas Asset Management, and the UK’s Aviva Investors and Legal & General Investment Management were the top performers. They were also the only four firms to achieve an A rating or above, while Robeco was the only firm to get a AA rating.
BNP Paribas said it is committed to aligning its portfolio investments with the goal of reaching net zero emissions. "It is now accepted that reaching global net zero emissions by 2050 is essential to prevent irreversible and massive damage from climate change," a spokesperson said.
South Korea’s Samsung Asset Management came last in the ranking in 77th place, while many other Asian firms were also given low ESG ratings. ShareAction attributed the poor performance to low information transparency in parts of Asia, which makes it more difficult to hold companies accountable to ESG commitments.
BlackRock (54), Vanguard (67), Fidelity Investments (72) and State Street Global Advisors (64) all ranked below 50th in the latest report. BlackRock and State Street were both rated D, while Vanguard and Fidelity Investments were rated E. ShareAction said that Vanguard has no clear policy on either climate or biodiversity.
A BlackRock spokesperson told IFR that the report "does not take into account the fact that clients invest with BlackRock in pursuit of their long-term financial goals," and that the firm's role is to help clients achieve these goals as stewards of their assets.
Sharp improvement?
Some global firms are showing signs of improvement that ShareAction described as "surprising and inspiring shoots of progress". JP Morgan Asset Management, the fifth-largest asset manager, has gained 58 places since the previous report in 2020 and ranked 13th in the latest report with a B rating.
“JP Morgan didn’t really have ESG frameworks when we did the investigation last time,” Sood said, adding that the company’s newly recruited specialists and increased resources dedicated to ESG contributed to its improvement.
DWS Group, one of Germany's biggest asset management firms, climbed seven places to 12th position after battling to overcome a greenwashing scandal that saw the firm's offices raided last May when a whistleblower said that it had misrepresented the share of assets invested using ESG criteria.
Sweden’s SEB Investment Management, US-based T Rowe Price and Spain’s Santander Asset Management have all improved by more than 20 places to 9th, 18th and 20th, respectively, with SEB Investment Management climbing 42 places. In 16th place, Ostrum Asset Management was the highest-rated ESG fixed income specialist.
Maria Elena Drew, director of research, responsible investing at T Rowe Price, said the improved ranking is a testament to the firm's significant investment in ESG. It has expanded ESG research, developed a proprietary ESG model that covers a broad range of social factors, and strengthened its engagement policy and escalation process with investees, Drew said.
ShareAction's Sood said the encouraging progress made by some American firms showed that the anti-ESG movements in the US had less actual impact than he initially expected.
“Maybe it’s a barrier to bringing about extreme changes, but it’s clearly not a barrier to doing the basic things,” he said, referring to establishing ESG policies and frameworks.
ShareAction warned that that biodiversity remains a “blind spot” for ESG practices, as many firms cited difficulties to source relevant data. It recommends that asset managers incorporate climate scenario analysis when making investment decisions and set out clear consequences and escalation plans when portfolio companies violate ESG standards.