Finding 4: The worst performers in our survey manage a disproportionately large volume of assets and include four of the world’s five largest asset managers.
Finding 5: A passive investment strategy is not a barrier to having a leading approach to responsible investment.
Finding 6: A focus on specific asset classes is not a barrier to responsible investment performance.
Finding 4: The worst performers in our survey manage a disproportionately large volume of assets and include four of the world’s five largest asset managers.
Figure 2: The worst performers manage a disproportionately large volume of assets
The 35% of managers rated D or E control half of the total assets under management (AUM) of all managers in the survey – over US$38 trillion (Figure 2). These include four of the world’s five largest asset managers (Table 4). The behaviour of these five is especially important as their combined AUM represents approximately a third of all the AUM of asset managers surveyed. In contrast, the 29% of managers rated B or higher represent only 23% of the total AUM.
Table 4: Four of the world’s five largest asset managers are rated D or E
Nevertheless, there are examples of both large and smaller managers (in the context of this survey) at both ends of the ranking table. Positively, the improvement shown by J.P. Morgan AM (Finding 3), and top ten rankings achieved by AXA IM, Legal & General IM, and Schroders –who each manage assets of over $1trillion – show that size is not a barrier to progress on responsible investment issues.
Finding 5: A passive investment strategy is not a barrier to having a leading approach to responsible investment.
Table 5: Predominantly passive asset managers show a wide range of performance
The three largest passive[1] managers sit in the D and E bands (Finding 4). However, the overall performance of predominantly passive managers[2] is more mixed, with grades from A to E (Table 5). Legal & General IM in particular – ranked fourth overall, rated A, and ninth largest by AUM – demonstrates that passive investors – even large ones – can have a leading approach to responsible investment.
Leading practice: Legal & General Investment Management (LGIM)’s targeted climate engagement
Ranking fourth in our survey and rated A, LGIM proves that having a predominantly passive investment strategy does not prevent asset managers from promoting responsible investment. In fact, LGIM’s highest sub-score is its stewardship score, the fourth highest among the 77 managers.
One of its passively managed environmental, social and governance (ESG) funds, the Future World ESG Developed Index Fund, “does not hold ‘pure’[3] coal miners, manufacturers of armaments, perennial offenders of the UN Global Compact, and tobacco companies”[i]. In addition to using LGIM’s ESG score tilting and a built-in decarbonisation trajectory, the fund also incorporates the LGIM Climate Impact Pledge (a targeted climate engagement campaign) and may exclude companies if engagement proves unsuccessful. The engagement campaign[ii] strategy is sector-leading and backed up by clear, public expectations and minimum requirements for companies across 15 sectors, including hard to abate sectors.
Finding 6: A focus on specific asset classes is not a barrier to responsible investment performance.
Table 6: Fixed income specialists show varying levels of performance
Nine managers in our survey specialise in fixed income[4]. These managers demonstrate varying levels of progress in their approach to responsible investment and are spread across the B to D bands; there are none in the AAA-A or E categories (Table 6). Unlike equity owners, managers who only own fixed income aren't able to effect change by voting, and we have accounted for that in our methodology. Nevertheless, they retain other levers to influence company behaviour and we believe that fixed income investors should engage with companies on responsible investment issues: this is not a task for equity investors alone[iii].
Leading practice: Ostrum Asset Management integrating and engaging on responsible investment issues
With over 80% of assets under management invested in fixed income, Ostrum Asset Management ranked 16th overall, achieving a B rating, and scored above average in all sections.
Ostrum Asset Management reported that it will fully withdraw from unconventional and/or controversial oil & gas exploration and production businesses by 2030. It no longer invests in companies developing new coal projects since January 2021; and as of 2022, it no longer invests in companies that have not set out a coal phase-out strategy in line with the Paris Agreement.
Ostrum Asset Management has a dedicated biodiversity strategy, which excludes some companies that carry out specific harmful activities in areas of global biodiversity importance. It also reported integrating biodiversity-related requirements into sector policies for energy, mining, and agriculture, forestry and fisheries.
On social issues, the asset manager reported having engaged on worker health and safety, public health, and diversity and inclusion. It also excludes from its investments any issuers that are proven to contravene the main principles of international standards on human and labour rights, environmental protection, and business ethics. It also has exclusion policies on tobacco, controversial weapons, and money laundering or terrorism.
Footnotes
[1] Passive investing is an investment strategy intended to track a market index or portfolio. It contrasts with active fund management where the fund manager actively chooses whether or not to invest in a particular security.
[2] Defined as holding at least 50% of total AUM in passive strategies.
[3] ‘Pure’ coal miners are companies that are involved solely in the extraction of coal.
[4] Defined as holding at least 60% of total AUM in fixed income.
References
[i] Legal & General Investment Management (2023). Legal & General Future World ESG Developed Index Fund. Available online at: https://fundcentres.lgim.com/en/uk/private-investors/fund-centre/Unit-Trust/Future-World-ESG-Developed-Index-Fund/.
[ii] Legal & General Investment Management (2022). Climate Impact Pledge 2022. Net zero: Going beyond ambition. Available online at: https://www.lgim.com/landg-assets/lgim/_document-library/responsible-investing/lgim_climate_impact_pledge_2022_report---final.pdf.
[iii] ShareAction (2019). Sleeping Giants: Are Bond Investors Ready to Act on Climate Change? Available online at: https://api.shareaction.org/resources/reports/Sleeping-Giants_BondInvestors_2019.pdf.
All links accessed January 2023.