"Asset Owner Coalition of $1.5trn unveils new directive for manager accountability in stewardship alignment"
Pressure Mounts on Asset Managers to Enhance Climate Stewardship
In a bid to address the current crisis in asset manager stewardship, a growing number of asset owners are reinforcing their expectations for climate-focused actions from asset managers. This push could help reverse the trend of wavering commitment among some managers.
Asset owners, who control capital at the top of the investment chain, have maintained high expectations for asset managers to prioritize climate stewardship aligned with net-zero transition goals. They advocate for meaningful, research-based, and collaborative engagement with companies, rather than superficial "box-ticking" exercises.
This strong stance persists despite challenges in certain parts of the industry, particularly in the U.S., where political pressures have caused some managers to falter under pressure, disappointing asset owners seeking effective climate risk management.
A coalition of 26 large asset owners, representing over $1.5 trillion in assets, issued a joint climate stewardship statement to address significant gaps between asset owner expectations and managers' actual implementation of net-zero commitments. The coalition includes major investors from the UK, Europe, Australia, and the US, such as Phoenix, Aegon, Scottish Widows, Nest, Sisters of Charity of St. Vincent de Paul of New York, Swiss Pensionskasse Basel-Stadt, and Australian Ethical Investment.
The statement adopts a systematic approach to voting, underpinned by a robust theory of change. It calls on managers to use a combination of industry and public policy engagement. The aim isn't to be punitive but to help managers improve. Escalation isn't a one-size-fits-all process and varies among the signatories.
Initiatives like the Climate Resilience Investment Framework (CRIF) provide tailored guidance to investors to better assess and manage physical climate risks, supporting more resilient investment portfolios and enhancing stewardship quality. European efforts advocate for a unified EU stewardship code to harmonize expectations and improve cross-border engagement on net-zero targets.
However, signs of progress coexist with recognition that much work remains. Some global managers have lost mandates or client confidence due to weak stewardship performance, but positive outcomes are emerging where asset owners have driven companies to commit to credible science-based decarbonization targets and improve disclosure, especially in Europe and parts of Asia and Latin America.
In the wake of an in-depth 2023 review by professor Andreas Hoepner that found significant misalignment between managers and asset owners on stewardship, particularly among larger US-based managers, the People's Pension has previously stated that it would consider divesting from managers if insufficient progress on stewardship is made.
For further information, or to sign up to the statement, please contact: [email protected]. The statement prioritizes collaborative stewardship initiatives "where permissible."
In conclusion, the clear, high, and collectively reinforced expectations of asset owners are increasing pressure on asset managers to strengthen climate stewardship. This push is likely to help reverse recent backsliding trends and improve outcomes, though the effort is ongoing and uneven across regions and managers.
Asset owners are urging asset managers to incorporate environmental-science, such as climate-change, into their business strategies, aligning with net-zero transition goals, as shown by the coalition of 26 large asset owners who issued a joint climate stewardship statement. This push could potentially impact finance strategies, as managers who fail to meet these expectations may face consequences, such as potential divestment.
