Vanguard, BlackRock and other investors accused of ‘treading water’ on ESG issues
An analysis of the environmental, social and governance (ESG) policies and performance of investors collectively managing $77trn of assets has found that two-thirds have “serious gaps” in their approach, including the four largest players in the world.
BlackRock, Vanguard, State Street and Fidelity are among the dozens of asset managers receiving low grades in ShareAction’s latest analysis of ESG practices in the sector, published today (26 February).
The analysis, entitled ‘The Point of No Returns’, ranks asset managers on their governance and stewardship, as well as the strength of their policies and extent of their impact on climate change, biodiversity and society.
It paints a picture of weak progress across the board. Two-thirds of the 77 companies covered, collectively managing $60trn in assets, have “serious gaps in their responsible investment policies and practices” for at least one of these areas.
“A majority of the world’s largest asset managers are failing to meet even basic criteria, let alone take the steps needed to help protect people and planet for generations to come,” ShareAction’s head of financial sector research Claudia Gray said.
“The impact of the decisions these asset managers make cannot be understated. As managers of tens of trillions of dollars, and investors in the biggest companies from many industries, their decisions have a vast impact all over the world. They should be considering their effects on our climate, the ecosystems providing our life-support systems, and human wellbeing worldwide. These problems create real risks for the big companies and their investors, but as our research has uncovered, there remains a lack of ambition to drive real-world improvements.”
The weakest area overall was biodiversity, with even some of the top-rated companies receiving a weak score here. ShareAction is urging asset managers to get ahead of the curve and implement stronger policies on forests, rivers and oceans. It notes that voluntary biodiversity standards are being developed at a pace and that nations will soon update their own plans, after a new UN Treaty was ratified late last year. The finance sector will be crucial to delivering its commitments to halt and reverse nature loss.
Also of concern is the fact that some of the world’s largest asset managers received poor grades on multiple ESG issues. The so-called ‘big four’, BlackRock, Vanguard, State Street and Fidelity Investments, all received an overall grade of ‘CCC’ or lower.
Vanguard received an ‘E’ grade, with ShareAction rating it particularly poorly on climate and biodiversity. These were also the weak spots for BlackRock, which received a ‘D’ grade overall.
State Street also took a ‘D’ grade, with governance being its weakest area. Fidelity Investments’ overall grade was ‘E’, and its weakest area was social impact.
Other companies receiving low grades include Morgan Stanley, Allianz, Credit Suisse and Samsung Asset Management, the latter of which was the lowest-ranked of all 77 firms assessed.
ShareAction has stated that there is a “huge” difference between ESG performance based on where asset managers are based. It raps asset managers based in North America and the Asia-pacific regions for lagging behind their European counterparts and notes that firms in these geographies often failed to provide even basic ESG information. US managers received the worst grades more than three times as frequently as their European rivals.
A BlackRock spokesperson said the firm questions ShareAction’s methodology. They said: “The premise of the report does not take into account the fact that our clients invest with BlackRock in pursuit of their long-term financial goals and that, as stewards of their assets, our role is to help them achieve these goals.”
Despite poor performance overall, ShareAction has noted some “surprising and inspiring green shoots of progress”, in the form of significant improvements from some asset managers and continued leadership from others.
The four top-ranked asset managers are Robeco, BNP Paribas, Aviva and Legal and General. Robeco and BNP Paribas also topped the rankings at ShareAction’s late edition, in 2020.
Elsewhere, SEB Asset Management climbed a significant 51 places, improving its climate and biodiversity targets as well as its stewardship. Santander Asset Management similarly climbed 44 places, with ShareAction noting the adoption of stronger climate targets. The biggest climber was JP Morgan Asset Management, which was ranked 58 places higher than in the 2020 edition – also largely due to movements on climate.
ShareAction has stated that these examples “show that investing can be both responsible and profitable, even for those managers of a considerable size”.
Nonetheless, BNP Paribas is set for a court case over its climate impact – specifically, its financing of oil and gas. A coalition of NGOs including Oxfam and Friends of the Earth gave BNP Paribas notice last November, stating that it is failing to meet its due diligence obligations over its continues support for fossil fuel expansion. It was confirmed this week that the Paris Judicial Court will hear the case.
BNP Paribas has said it is “regrettable” that the NGOs had not engaged in more dialogue before taking legal action. It has stated that most major asset managers are “long-standing financiers of energy production” and that more than half of its financing in this field is now low-carbon, compared with 5% 10 years ago.
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