A number of charities have set eight minimum standards on climate-related issues they expect from the fund managers that manage their investments.
The initiative, which launches today, has been co-ordinated by Friends Provident Foundation and Students Organising for Sustainability (SOS-UK) and, in partnership with the Charities Responsible Investment Network (CRIN) and Responsible Investment Network – Universities (RINU).
Amongst the signatories are Friends Provident Foundation, WWF UK, Jesus College Cambridge, The Health Foundation, Newcastle University, Jesuits in Britain and Joseph Rowntree Charitable Trust.
The eight standards fall into four areas, namely strategy, asset allocation, active ownership and transparency. In summary, the standards are:
- An investment strategy covering all assets under management to achieve net zero emissions by at least 2050.
- Operational alignment with achieving net zero by 2050 and 45% emissions reductions by 2030.
- Exclusion of coal and tar sands.
- An active commitment to invest in solutions to climate change.
- A presumption to vote in favour of shareholder resolutions on climate change, taking a “comply or explain” approach.
- Active shareholder engagement on 1.5°C aligned transition plans.
- Engagement escalation policies.
- Regular disclosure of holdings, voting record and engagement activity.
Those behind the initiative cite a number of pieces of research as proving there is a need for fund managers to be held to higher standards when it comes to action on the environment.
This includes a recent progress report from the Net Zero Asset Managers Initiative (NZAMI), which found that, on average, only 35% of assets under management were committed to be managed in line with net zero.
Last year, ShareAction research found that only 21% of the 75 largest managers had a dedicated climate policy, and only 16% had a coal exclusion policy.
Meanwhile, a CRIN survey of fund managers from May 2020 found that the majority (54%) had not yet set any investment targets related to climate change, while just 36% had made executive pay conditional on responsible investment performance.
Colin Baines, investment engagement manager at Friends Provident Foundation, said: “The variance in standards from asset managers making similar climate commitments and claims is huge.
“As asset owners, we wish to send a strong market signal and draw a line on greenwashing by establishing a baseline to judge them against. For example, we expect managers that claim to support the Paris climate agreement or net zero targets to vote in favour of aligned shareholder resolutions. It is incredulous that so many managers vote against their stated climate objectives, often more than they vote for them.”
50% reduction in carbon intensity by 2030
One fund manager that has recently announced plans to decrease the carbon intensity of its investment portfolios and as a business is abrdn (formerly Aberdeen Standard Investments).
To coincide with finance day at COP 26 last week, the firm said it will reduce the carbon intensity of its assets by 50% by 2030 from a 2019 baseline.
It will achieve this via three goals, decarbonisation of its portfolios, providing net zero solutions and active ownership.
On the final point, Stephen Bird, chief executive, said: “We must be very clear: simply moving our clients’ money out of high-carbon intensity stocks into greener options will not solve the world’s crisis. Decarbonising a portfolio is not the same as decarbonising an industry. To achieve that we need effective engagement with companies because more seismic change will come from backing credible transition firms on their path from high to low carbon intensity.”
According to the 2021 Charity Finance Fund Management Survey, as of 30 June 2021, abrdn managed £2,351.6m in assets for 337 charity clients. Currently, 63% of this is classified as “ethically managed funds”.
The fund manager has also set the goal of being net zero in its own operations by 2040.
Bird also warned that “asset managers cannot operate in a vacuum” and said that “bolder, collective action by governments is desperately needed”.
One wider piece of possible collective action could come from the Financial Conduct Authority (FCA), the regulator of the financial sector.
Last week, it launched a discussion paper on “sustainability disclosure requirements for asset managers and FCA-regulated asset owners, as well as a new classification and labelling system for sustainable investment products”.
The paper will inform the development of policy proposals for consultation during the second quarter of 2022.