This report assesses the environmental, social and governance (ESG) policies and practices of 77 of the world’s largest asset managers, representing over US$77 trillion in assets. The report finds that asset managers’ interim net zero targets should align with limiting temperature rise to 1.5C. The assessment shows the asset managers’ recognition of the importance of biodiversity has grown since ShareAction’s 2020 survey. However, the investment industry’s response to the biodiversity crisis remains weaker than its response to climate change. This report offers detailed insights useful to asset managers, asset owners, and policymakers to identify the areas of strengths and weaknesses in the sector.

Strategy and targets

The report finds that almost all asset managers have a long-term net-zero target. However, incomplete coverage of assets and scope 3 emissions means that asset managers’ interim targets are insufficient to fulfill their long-term commitments. The report recommends that asset managers need to set stronger and more comprehensive interim net-zero targets.

Investment policies

The report finds that asset managers need to direct capital towards the climate transition. Asset managers were only considering climate opportunities in a limited way and few had set investment targets. Whilst most managers could point to at least one fund that explicitly invests in the climate transition, there is little evidence of this being incorporated into mainstream funds. Asset managers must demonstrate a broader approach to responsible investment, with responsible investment strategies now representing over 66% of their total assets under management (AUM). Furthermore, as they commit to climate integration policies, they continue to invest in oil and gas expansion.

Risk analysis, management, and mitigation

The report finds that assessment of biodiversity risk remains inadequate, with few firms having made commitments on biodiversity loss and set emissions targets aligned with pathways to limit warming to 1.5C. Although the majority of asset managers carried out some assessment of biodiversity risk, few use this information to inform policies and targets. It also found that just 8% of asset managers said they measure and set targets using portfolio scope 3 carbon emissions. The majority of asset managers assess company performance on biodiversity, but many do not use readily available biodiversity data and metrics.

Corporate engagement

The report finds that biodiversity is rapidly increasing as a priority for engagement. Asset managers reported increasing engagement with companies about their decarbonisation strategies, while the biggest focus for biodiversity was disclosure. The report recommends that asset managers should employ rigorous monitoring processes which allow them to calibrate their engagement frequency, quality, and level by assessing the appropriate pressure to exert across their various investee companies.

Disclosure

The report recommends that asset owners should strengthen due diligence of asset manager selection by reviewing performance on climate and biodiversity. Companies must also implement transition plans that include short, medium, and long-term targets for reducing greenhouse gas emissions in line with 1.5C pathways. Regulation is necessary to clarify how investors should balance their fiduciary duty constraints and the need to actively mitigate impacts on people and planet. Companies must provide disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and build capacity to fully implement the TNFD recommendations.