Is lack of board expertise slowing RI progress at asset managers?
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Just 23% of asset managers said their board members receive mandatory training on responsible investing, a new survey has found. It also shows that fewer than half (42%) of the managers surveyed are working towards net zero for all assets under management.
Large pension funds and master trusts are subject to new legal requirements on how they assess climate risk, which they must report in line with the Taskforce on Climate-related Financial Disclosures. A prerequisite for this is that funds and their advisers receive adequate information from asset managers about investee firms, but a new survey by consultancy LCP shows that managers still have more work to do in this area – especially when it comes to the board members.
While 69% of the 146 managers surveyed said their staff receives mandatory training on responsible investment, for board members – who influence the strategic direction of the company – this was the case at less than a quarter (23%) of managers.
Perhaps ironically, engagement is skewed towards board effectiveness and climate chance, as 71% and 66% of managers respectively said they frequently engaged on these issues. However, nearly half (42%) have no formal escalation policy that could help them achieve their engagement objectives more quickly.
Net zero is a formal target at 42% of asset managers, but the report notes that among those with a commitment, “plans to achieve this are at an early stage”.
‘Out of step with rapidly increasing expectations’
Claire Jones, who heads up responsible investment at LCP, said the majority of managers are taking ESG issues and stewardship much more seriously now, using voting and better reporting on climate change ahead of it being a regulatory requirement.
However, she said it was “concerning that there is a significant number who don’t have appropriate board oversight, which is out of step with the rapidly increasing expectations in this space”.
Sapna Patel, a senior consultant, added that climate change is on the agenda for managers, “their net zero commitments need to be backed up by clear plans as to how to meet these targets by 2050, and we would also expect managers to improve reporting of climate-related metrics, where coverage of portfolios is still relatively limited”.
The recently strengthened UK Stewardship Code should make engagement a topic for managers, she added. “While there has been some progress in managers’ engagement on certain topics, such as climate change, we were surprised that there are some social issues, such as public health, which many managers rarely consider, particularly given the backdrop of a pandemic over the last two years.”
The results mean that out of a score of four – rising from weak to strong – the majority of those surveyed land a mere two, with another concentration of managers in three, while less than 10% of managers received a ‘strong’ rating.
The report contains a number of recommendations for asset owners – including on board oversight on how responsible investment is implemented and the expertise that exists at board level, how managers ensure that any third-party data is fit for purpose, and encouraging managers to engage with all investee entities, beyond just equity issuers.
