ESG: Asset Managers Falling Short on 'S'

Responsible investment group ShareAction has found that the largest asset managers in the world are still not doing enough in terms of protecting human rights and labour and are mostly limiting their considerations of social impact to ESG funds.

According to a report by ShareAction released on May 10, only 6% of asset managers exclude companies that knowingly breach human rights from all their investments. Meanwhile, 43% of asset managers only exclude such companies from ESG or responsible investment-labelled funds. ShareAction highlighted that these funds usually represent a small portion of asset managers’ portfolios, and the actual impacts of these policies are not as significant as they could be.

The report is part of a broader evaluation of the ESG performance of 77 of the world's leading asset managers, which collectively manage over US$77 trillion in assets. The top performers in ESG were identified as Robeco from the Netherlands, BNP Paribas Asset Management from France, and Aviva Investors and Legal & General Investment Management from the UK.

Compared to two years ago, asset management firms have made progress in some social areas. For instance, 84% of them now have a policy of excluding companies that generate revenue from controversial weapons, up from just 16% in 2020.

However, according to Abhijay Sood, the financial sector research manager at ShareAction, these achievements represent the "lowest of the low-hanging fruit" and that other emerging public health issues, such as financial well-being, nutrition, and vaccine equity, are frequently ignored. Sood also pointed out that less than 10% of asset managers have made commitments in these areas, whereas 66% have committed to tobacco.

The report also revealed that less than 25% of asset managers have a policy regarding investments in sovereign bonds, corporate debt, and shares of companies that are involved in human rights violations. However, the report did highlight the efforts of AXA Investment Managers in France, which has established leading policies that exclude investments in sovereign bonds and state-owned companies located in countries with low freedom rankings and high military budgets.

Abhijay Sood from ShareAction also pointed out that a lack of data to quantify social issues is a major challenge faced by many asset management firms. "Compared to climate change, there is not one easy metric like carbon emissions," he stated. Therefore, asset managers should invest more resources into engaging with portfolio companies to obtain relevant data.

The report also suggested that asset managers should integrate more social indicators, such as gender pay gap, workforce unionisation, and staff turnover, into their investment strategies. However, the report noted that less than 50% of asset managers currently consider these metrics. For example, UK-based abrdn has been using third-party data to assess the social impact of its investments. It employs a proprietary operation score to rate companies' human rights and labour management performance.

Furthermore, ShareAction suggested that asset managers should monitor the data related to investee companies' supply chains by conducting regular reviews rather than just reacting to public controversies.

To view and compare company ESG Ratings and Sustainability Reports across sectors, follow our Company ESG Profiles page.

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Source: Reuters