Trade body coalition takes aim at asset manager commitment

The UK Sustainable Investment and Finance Association and the Climate Change Coalition recently published the results of a survey of 39 fund managers, together accounting for $10.2tr worth of assets worldwide, seeking to assess the willingness of fund managers to invest in and engage with integrated oil companies on environmental issues.

The survey, circulated earlier this year following the inaugural version in 2018, focussed on how these managers responded to the financial risks associated with climate change and measured the levels of engagement by these managers with oil companies to meet the carbon emission reduction targets set by the Paris Accord in 2015.

The results showed that fund managers are becoming more aware of the financial risks associated with investments in oil companies, preferring to adopt informal, ad hoc methods of engagement on environmental issues. Whilst only a fifth of managers were found to have a firm-wide policy to align their portfolios with the Paris Accord targets, approximately a third operated this policy on a fund-by-fund basis.

Looking forward, approximately two thirds of the respondents wanted oil companies to switch their investment to support the low carbon transition in a way that was consistent with the Paris targets. However, the number of managers who cited a preference for oil firms to gradually wind down their businesses and return cash to shareholders fell to 24%.

This survey forms part of a wider movement of increasing scrutiny from clients and industry bodies on fund managers’ commitment to environmental, social, and corporate governance (ESG) issues. For example, in the 2019 version of the Stewardship Code, set to come into effect in July 2019, signatories are expected to take environmental factors into account when fulfilling their stewardship responsibilities and adopt an engaged approach to stewardship and investment decision-making, aligned to beneficiaries’ investment time horizons.

The updated code, which will be implemented under the supervision of a new regulator with enhanced enforcement powers to replace the FRC, currently contains draft recommendations to widen the application of these principles to asset classes other than publicly listed equities and require signatories to provide annual reports on their engagements with companies.

Additionally, earlier this year, the FCA published a consultation paper (CP19/7) containing its proposals for the implementation of parts of the EU Shareholder Rights Directive II (SRD II) by 10 June 2019. As part of its recommendations, the FCA has sought to implement a requirement for asset managers and life insurers to have and disclose an engagement policy which must include information on how it monitors investee companies on their social and environmental impact. See our overview of the FCA’s proposals in our article, “Let’s get engaged: Stewardship in the UK - FRC and FCA consult on revisions to the Stewardship Code and on the regulatory framework for effective stewardship”