ESG | May 11, 2023

ESG fund managers are going too far, or not far enough, depending on who you ask

Amy Cortese, Jessica Pothering and Isaac Silk
ImpactAlpha Editor

Amy Cortese

ImpactAlpha Editor

Jessica Pothering

ImpactAlpha Editor

Isaac Silk

ImpactAlpha, May 11 – It is a fraught moment for asset managers with ESG-labeled funds.

In Washington, DC this week, Republicans staged a hearing with state attorney generals to explore the “dangers” of ESG. “The actions of asset managers joining horizontal organizations to abuse their trillions in assets, proxy advisors in recommending votes for collateral purposes, and the Department of Labor in eliminating protections for ERISA plan participants harm consumers,” testified Utah AG Sean Reyes.

For ESG advocates, many asset managers don’t go far enough. Case in point: some of the largest members of the Net Zero Asset Managers initiative are heavily invested in oil and gas companies, despite their pledges to align with Paris Agreement goals to keep warming in check. 

Doubling down

In its analysis of 90 asset managers, 25 of whom are NZAM members, Carbon Tracker identified more than 160 sustainability/climate funds that hold a combined $4.5 billion of investments in more than a dozen oil and gas companies.

Among NZAM signers, Blackrock, Fidelity, and the Capital Group increased their already significant oil and gas positions in 2022, while DWS, Abrdn, and Schroders held steady. Asset managers with stakes in oil and gas companies may claim that they do so in order to take an active stewardship approach.

“In reality, many asset managers vote against even relatively mild climate-orientated shareholder proposals,” write the authors.

Human rights risk

Less than half of asset managers use human rights and labor abuses as an exclusion screen in their ESG-designated funds, according to separate research from ShareAction that covered 77 firms managing $77 trillion in assets.

“They also rarely use their influence to tackle issues such as Indigenous rights and life-limiting public health problems,” say the report’s authors.

ShareAction says asset owners are the key to change. Among the recommendations: Require reporting from asset managers on how they manage social issues and measure managers’ performance against a set of target indicators.