The gap between asset managers’ climate assertions and evidence of action remains painfully wide, new research reveals today.
Overall, 86% of strategies now measure climate-related risks and opportunities, according to Redington’s fourth annual Sustainable Investment (SI) Survey.
Just under a quarter (23%) of managers have also continued to hire dedicated climate resource, mostly to support disclosure & regulatory obligations and stewardship, as well as boosting research and development teams.
However, evidence of climate action in practice is still considerably lagging.
For example, while 74% of managers monitor emissions-based metrics for their portfolios, only 38% of managers monitor some sort of Portfolio Alignment metric. This is arguably not good enough in a world where large pension schemes need to record portfolio alignment metrics in their TCFD reports for the first time this year.
Emissions is still the magic ingredient for incorporating climate change considerations into strategies. It is therefore surprising that 20% of managers still don’t measure the Scope 1 & 2 (direct emissions) of their portfolios. Worse yet, 32% of managers still don’t measure Scope 3 emissions of their portfolios, a key area where asset owners are pushing for data quality improvements.
Edina Molnar, Vice President – Sustainable Investment, at Redington, commented: “In reflecting on where the industry was just three years ago compared with where we are now, we are encouraged by the general shift among managers to take climate considerations into account alongside financial factors.
“Nevertheless, there needs to be more evidence of actions and outcomes across the spectrum. The number of managers not measuring scope 3 is particularly disappointing and begs the question of whether managers are truly integrating climate-related considerations into investment decisions.”
Redington’s study finds that high-level commitment to net zero continues, with 57% of managers reporting some kind of firm-wide pledge (vs. 59% in 2022). However, this hasn’t filtered down to strategy level, with only 30% having commitments here (vs. 34% in 2022).
Zooming out of net zero, 62% of surveyed firms have set some form of decarbonisation target – 5% higher than net zero commitments specifically. Behind the 5% delta are the managers with potentially shorter-term or interim decarbonisation targets.
Of those that have set strategy-level decarbonisation targets, it is concerning to see that 16% of the strategies do not yet monitor emissions-based metrics. And of all strategies with a decarbonisation target, some 15% are yet to identify the largest emitters in the portfolio.
Oliver Wayne, Head of Manager Research at Redington, continued: “Best practice suggests that implementing a decarbonisation strategy should begin with identifying the issuers that produce the highest emissions. This is a crucial first step for understanding the emission profile of a fund – i.e. baselining for the decarbonisation objective – as well as that of the underlying assets, so that a manager can identify how the strategy will achieve its goals.
“A failure to measure emissions tends to undermine our trust in the robustness of decarbonisation targets, so we hope to see a significant improvement here moving forwards.”
With 2030 fast approaching and marking a key deadline for multiple commitments, Wayne says that the whole industry must continue challenging, collaborating and innovating to avoid stagnating and inaction on climate change.
He concluded: “We will continue to engage with managers to discuss current barriers to progress and drive action in areas where it is evidently lacking. This includes assessing the feasibility of strategy-level decarbonisation targets and improving data quality across the board.”
As part of its annual SI Survey, Redington engaged with 127 managers around the world, covering 281 strategies and an aggregate £39 trillion in combined assets under management.
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