Moreover, despite three quarters (76%) of managers surveyed saying they consider climate related risks and opportunities, the firm’s analysis found that just 60% can provide an example of when these factors have actually influenced buying or selling decisions.
Nick Samuels, Head of Manager Research at Redington, says the discrepancy highlights a significant industry issue that, despite engagement seemingly increasing, this is not yet translating into concrete and consistent portfolio decisions.
Samuels commented, “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.”
The firm interviewed a total of 104 managers from across the globe, representing over $10 trillion in combined assets under management, on a vast spectrum of areas relating to ESG.
One area it was clear asset managers needed to give greater attention to was climate change.
With global momentum around climate change quickly rising, Redington says that all players in the global economy – including investors, asset managers and investment consultants – must be prepared to play their part in the UK’s transition to a low carbon economy.
“While the positive momentum is clear, 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. 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”, said Samuels.
He added, “there also needs to be a fundamental shift in conversations to push companies for better transparency on their environmental footprint, which will allow for better quality carbon data and access to other potentially relevant environmental metrics.”
Redington’s research highlighted that only 28% of asset managers surveyed were currently reporting against the Task Force on Climate-related Disclosures (“TCFD”) guidelines.
However, the firm does expect to see significant improvement in the coming months, with half (50%) of managers surveyed currently considering adoption of the TCFD guidelines in their reporting procedures.
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.”
He stressed however that the need for education and action is not limited to the asset management community.
“While we are committed to challenging managers on the quality of their climate change risk management, tackling these issues is a key priority for all of us. As an industry, we must look to continually grow and deepen our expertise on these matters. The pivotal role financial institutions have to play in shaping the world of tomorrow cannot be underestimated, and we must embrace the responsibility that comes with it.”
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