The findings of the WWF’s study, which analyses the publicly disclosed responsible investing (RI) approaches of 22 ESG- leader Europe-based asset managers operating in Asia, ranging from Aberdeen Standard Investments to UBS Asset Management, “show that important first steps have been taken to address climate-related risks”.
However, asset managers now need to complement their RI approaches by focusing on other threats from natural capital loss, including water risk, deforestation, biodiversity loss and ocean degradation, and by making greater reference to science-based criteria when addressing sustainability issues in their investment portfolios, according to WWF’s 2020 Sustainable Finance Report.
The study was released in conjunction with the launch of the WWF’s new online tool, called “Respond” (Resilient and Sustainable Portfolios that Protect Nature and Drive Decarbonisation), which offers asset managers a way “to improve portfolio resilience and alignment with a low carbon and sustainable future, through science-based approaches to responsible investment,” according to the report.
Respond is based on WWF’s six pillar RI investment framework — purpose, policies, processes, people, products – which comprise 14 indicators and 72 sub-indicators.
The study found that the 22 asset managers currently deploy a wide array of approaches to integrate sustainability, and in particular climate change, into their investment processes. However, there is often a disconnect between their recognition of specific risks and their expectations about investee companies to address those risks.
For instance, all 22 asset managers publicly recognise the long-term risks that climate change poses and support the Task Force on Climate-related Financial Disclosure (TCFD) recommendations, but only 36% have or will set targets to align their portfolios with a 1.5°C climate target.
Although 90% consider water risk as a part of their investment decision-making processes, just 18% expect companies to practice water stewardship, and while 82% consider issues like deforestation and biodiversity loss when making investment decisions, only 36% expect investee companies to obtain or support relevant sustainability standards that safeguard against these risks.
Perhaps most surprisingly, considering the anti-plastic campaigns lunched last year, just 14% of the asset managers said that ocean sustainability is incorporated into investment decision-making, and none expect investee companies to obtain or support relevant sustainability standards to safeguard against these risks.
The authors of the study noted that Asia is particularly at risk to environmental damage, with many of the region’s economies founded on manufacturing, fisheries and agriculture. All of these depend on healthily functioning natural capital and are highly exposed to climate change.
“For asset managers, greater consideration of climate and natural capital risks when investing, and engaging with unsustainable businesses in Asia, will be key to ensuring more resilient and sustainable Asian investment portfolios,” they wrote.
“To remain eligible for mandates and meet stakeholder expectations, it will also be essential for asset managers to enhance the transparency of their reporting,” they added.
Nevertheless, the 22 asset managers that took part in the survey scored highly on the “purpose”, “process” and “products” pillars of WWF’s RI framework, which reflects how efforts to integrate climate change and sustainability into their businesses have focused on commitments, procedural innovation and product development.
“In this way, they set the pace among asset managers competing for mandates from asset owners with increasingly ambitious climate strategies,” according to the survey.
But they need to do more, especially through addressing sub-indicators under “policies” to ensure their efforts and commitments translate into real change in their investee companies, it concluded.
