The world’s largest asset managers have significantly increased the use of voting policies and engagement to target ESG-related issues in their portfolios over the past few years, and these changes are also apparent in the managers’ responsible investment oversight and financial incentive policies, according to a new study released by responsible investment NGO ShareAction.
For the report, ShareAction examined the governanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. and stewardship practices of the world’s largest 77 asset managers, with a combined $77 trillion in assets under management, across Europe, the Americas and Asia Pacific, based on data from surveys as well as publicly available information.
The study found a sharp increase over the past few years in investors holding boards responsible for ESG-related matters through their voting policies. According to the report, 82% of asset managers currently have voting policies on climate change, compared to only 56% in 2020. Similarly, 81% reported voting policies on socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. issues, while in 2020 only 53% said that their voting policy covered human and labor rights. By region, the Americas held the highest proportion of asset managers with climate and socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. issue voting policies, at 91% and 95%, respectively, compared to Europe at 85% and 82% and Asia Pacific at 62% and 54%. Fewer asset managers have voting policies on biodiversity issues, with only 38% reporting a biodiversity policy.
Asset managers have also increased transparency on voting issues, according to the study, with 88% disclosing their voting records publicly, compared to 55% in 2020.
ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. issues are high up on the engagement priorities of most asset managers, according to the report, with nearly four out of five (79%) asset managers reporting an engagement policy on climate change, and 70% on socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. issues, but only about half on biodiversity issues.
The significant majority of asset managers (83%) were found to have escalation steps in their engagement policies, such as casting proxy votes against management or issuing public statements, and over half (56%) reported having taken some form of divestment action as part of an engagement process, including reducing equity or debt holdings, not buying new debt, or total divestment. Divestment action was much more common in Europe, reported by 74%, than among asset managers in the Americas, at 40%, or in Asia Pacific, at 31%.
As ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. issues have moved up on the asset managers’ agenda, responsible investment oversight and remuneration have similarly evolved. The report found that two thirds of asset managers reported that their boards or trustees now have some responsibility for the oversight of responsible investing policies, compared to only 21% in 2020.
One of the most significant changes uncovered by the report was in remuneration, with 83% of asset managers reporting financial incentives relating to responsible investment, compared to only 7% in 2020. Similarly, responsible investment training is increasingly common, with the study indicating that 94% of asset managers have at least some decision makers receiving training on responsible investment – including 69% with all decision makers receiving such training – compared to only 64% providing any responsible investment training in 2020.
While the report found increasing use of voting, engagement and stewardship policies at asset managers on major ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. issues, ShareAction pointed to several actions that the firms could take to increase their impact, including increasing board accountability for responsible investment policies, introducing mandatory training, implementing more robust engagement and escalation policies, and further increasing voting policy transparency.
Claudia Gray, Head of Financial Sector Research at ShareAction, said:
“To safeguard the wealth they manage and meet the expectations of their clients, asset managers must have effective governanceGovernance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. and stewardship structures in place. Our research, however, has found leadership failing to strategically play all the cards they have in hand to address global crises.”
Click here to access the ShareAction report.
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