Raising responsible investment best practice in asset management: Guidance manuals | ShareAction

ShareAction, the responsible investment charity, has published the first in a series of guidance manuals that set out standards and expectations for responsible investment practices by asset managers across specific topics.

This follows the launch last week of the charity’s ambitious new definition for responsible investment, which calls on institutional investors to take responsibility for the adverse real-world impacts of their investments on society and the environment. It describes four key principles for responsible investment: transparent, embedded consistently across all activities, considers negative and positive impacts on people and planet, and takes those impacts as seriously as risk and return.

Grounded in these principles and detailed research, ShareAction’s new Responsible Investment Standards and Expectations (RISE) series recommends actions that asset managers can and should take in today’s investment environment in pursuit of being a truly responsible investor. It is designed for asset managers, as well as for their asset owner clients, investment consultants and other stakeholders to inform their interaction with asset managers.

The first paper is titled: ‘How asset managers can set interim net zero targets that are fit for purpose’. It addresses how asset managers can set robust emissions goals to influence companies in their portfolios to decarbonise at the pace and scale required to limit global temperature rises to 1.5°C.

“Time is running out for an effective response to the enormous social, environmental and financial risks posed by the climate emergency. Asset managers have a vital role in this response by doing all they can to influence companies in their portfolios to reduce emissions in line with global goals to limit warming to 1.5° C.”

-Niall Considine, Head of Investor Engagement at ShareAction

Some asset managers have set net zero targets, including as part of the Net Zero Asset Managers’ initiative (NZAMi). However, ShareAction has identified problems in the way these are currently structured that jeopardise chances of reducing emissions 50 per cent by 2030 – a goal that is the bedrock of the NZAMi commitment and a critical milestone on the path to 1.5°C.

The new guidance proposes practical ways to address these problems. Commenting on its release, its author Niall Considine, Head of Investor Engagement at ShareAction, said:

“Time is running out for an effective response to the enormous social, environmental and financial risks posed by the climate emergency. Asset managers have a vital role in this response by doing all they can to influence companies in their portfolios to reduce emissions in line with global goals to limit warming to 1.5° C.

“We acknowledge that net zero target setting is complex and welcome the important first steps some investors have taken. We now need to see asset managers go further by strengthening their interim targets – these recommendations provide a practical framework to do this transparently.

“We hope that all those in the investment community who share our vision of a truly responsible financial system will use this guidance to play their part in driving the bold action the world needs to prevent worsening climate crisis.”

ShareAction’s guidance sets out five expectations for asset managers:

1. To advocate for a common approach to emissions reporting and interim target setting. Currently approaches vary significantly, which makes it difficult for clients, regulators and the public to compare progress and hold asset managers to account, and creates potential for greenwashing.
    
2. To enhance transparency about assets not currently included within targets and progress for bringing them into scope. Currently, targets only apply to a minority of asset managers’ portfolios. NZAMi has a commitment to aim for 100 per cent of assets to be covered.
    
3. To use a reduction in absolute, real-world emissions as the primary metric to report and set targets. Currently, many asset managers set targets based on potentially weaker alternatives such as intensity-based emissions that may not drive the deep decarbonisation needed.
    
4. To place real-world impact at the heart of net zero targets and evidence this by disclosing portfolio companies’ underlying contribution to emission targets. We need to see investors drive deep decarbonisation from their portfolio companies – for example by supporting high-carbon companies to transition by adopting low-carbon technologies and processes, not just avoiding high-carbon sectors.
    
5. To reflect the geographical and sectoral mix of the portfolio when setting targets, with greater ambition for companies operating in the Global North. Companies operating in the Global South are expected to decarbonise more slowly, as they contend with lower access to capital and higher underlying demand growth.
    

Alongside this, ShareAction is pushing for government action to ensure that the regulatory environment is able to unlock the full potential of finance to address harmful impacts on people and planet. This ranges from mandatory transition plans for all large companies to widening the concept of ‘best interests’ in fiduciary duties, so that social and environmental factors are considered alongside financial return.

Explore the full paper: RISE Paper 1 – How asset managers can set interim net zero targets

about

ShareAction is an NGO working to shape a world where the financial system serves our planet and its people. We mobilise global investors to use their influence to drive up labour standards, tackle climate change, protect the natural world, and improve people’s health. We push policymakers to ensure the financial system is working in the best interests of society. We work with people to create a movement for change.

All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.