
Point of no returns part V – leading practice: A guide to current leading practices by asset managers on responsible investment
This report provides investors with insights into leading practices for integrating biodiversity into investment strategies. It highlights best practices, case studies, and practical recommendations for enhancing the sustainability and resilience of investment portfolios.
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OVERVIEW
Introduction
The 2020 report evaluated 75 of the largest global asset managers, identifying significant shortcomings in responsible investment practices. None achieved AAA or AA ratings, highlighting systemic risks being largely ignored. However, pockets of excellence demonstrate the potential for substantial improvement. This guide aims to provide actionable insights and examples in responsible investment governance, climate change, human and labour rights, and biodiversity, aligning with ShareAction’s theory of change. This approach equips asset managers with practical examples to address systemic crises such as climate change and biodiversity collapse.
Responsible investment governance
Rethinking responsible investment
Best practices include integrating societal and environmental impacts into investment decisions. For example, Nuveen’s responsible investment principles focus on mitigating negative impacts, and Schroders’ SustainEx tool quantifies the societal and environmental effects of investments across over 10,000 companies.
Accountability
Governance structures embedding accountability at the board level, as demonstrated by BNP Paribas, are critical. Yet only 21% of managers surveyed ensure board-level oversight, exposing a significant gap in governance.
Training
Mandatory, frequent, and specialised training significantly improves performance. Robeco’s quarterly training and BNP Paribas’ ESG Champions programme exemplify best practices, leveraging external expertise and covering all asset classes.
Financial incentives
With only 7% of surveyed managers tying compensation to responsible investment goals, initiatives like Caisse de dépôt et placement du Québec’s carbon-reduction-linked bonuses show the potential of aligning remuneration with sustainability targets.
Voting transparency
Transparency remains inconsistent, but leading examples include Allianz Global Investors’ searchable portal and Legal & General’s pre-declared voting intentions, which set clear expectations for ESG-related decisions.
Escalation strategies
Robust escalation strategies, such as NNIP’s three-year engagement protocol, include divestment triggers for companies failing to meet objectives, emphasising accountability and effective stewardship.
Climate change
Firm-level policies and commitments
Leading practices include coal exclusion by 2030 in OECD countries and net-zero targets by 2050. La Banque Postale and AXA IM demonstrate robust policies, incorporating just transition principles and transparent exclusion criteria.
Portfolio decarbonisation
Robeco’s net-zero target and interim goals reflect actionable commitments in line with the Paris Agreement. Collaborative efforts like the Net-Zero Asset Managers Initiative further support ambitious decarbonisation.
Voting policies
Leaders like NNIP and Aviva Investors commit to voting against directors at climate laggard companies and supporting shareholder resolutions that demand greenhouse gas emission disclosures.
Thematic engagement
Legal & General’s Climate Impact Pledge targets over 1,000 high-emission companies across 15 critical sectors, linking voting and divestment to engagement outcomes. Sanctions against non-compliant firms, such as ExxonMobil, illustrate effective accountability measures.
Transparency in reporting
Comprehensive reporting by asset managers like Aberdeen Standard and DWS demonstrates how ESG engagement outcomes can be tracked and communicated effectively.
Human and labour rights
Firm-level policies
Robeco and DWS provide frameworks for excluding controversial weapons and addressing labour violations. These frameworks integrate international standards and proactive due diligence to strengthen human rights compliance.
Voting and engagement
Aviva’s voting policy includes gender and ethnic diversity targets, human rights compliance benchmarks, and board accountability for employee welfare. NNIP commits to supporting shareholder resolutions on supply chain labour standards.
Supporting better data
Initiatives like Aviva’s modern slavery transparency reports and BMO’s Workforce Disclosure Initiative aim to enhance social data availability, addressing a common industry barrier to improved ESG integration.
Biodiversity
Firm-level policies
Few asset managers systematically address biodiversity risks. ACTIAM leads with a no net biodiversity loss target by 2030, while AXA IM applies exclusion policies across portfolios for palm oil and other high-impact sectors.
Voting and engagement
Robeco and NNIP demonstrate how targeted, measurable engagements can address biodiversity loss in supply chains, with clear escalation protocols, including divestment.
Data initiatives
Collaborations like the Finance for Biodiversity Pledge and AXA’s biodiversity impact measurement project improve data quality, enabling better biodiversity-related investment decisions.
Conclusion
The report underscores the urgent need for systemic reforms in asset management to tackle environmental and social crises. While leading practices illustrate the potential for progress, achieving a ‘gold standard’ requires transformational approaches. ShareAction’s call for enhanced accountability, data quality, and stakeholder engagement offers a clear pathway for leveraging finance to drive sustainable global change.