Posted on 27 January 2021
WWF’s annual report on responsible investment practices, RESPOND, this year shows that while Japanese asset managers lead the way in Asia, Asian asset managers fall behind European peers in their ESG practices.
SINGAPORE, January 27, 2021 – WWF today shared the results of its 2021 report on responsible investment practices, titled RESPOND
(Resilient and Sustainable Portfolios that Protect Nature and Drive Decarbonization). The report this year highlights that Asian asset managers fulfil just 43% of RESPOND’s criteria, suggesting their portfolios may be at greater risk from climate change and natural capital loss. This is compared to Europe’s asset managers, who fulfil an average of 72% of the criteria. Among the Asian asset managers included, Japanese asset managers are leading the pack when it comes to responsible investment practices.
RESPOND 2021 looks at the performance of 30 asset managers across a six-pillar framework: Purpose, Policies, Processes, People, Products and Portfolio. The report includes eight asset managers headquartered in Asia together with 22 European asset managers.
WWF’s analysis finds that both groups continue to take important steps to build their responsible investment capabilities. In particular, all asset managers acknowledge their role in driving sustainable development and 29 have published overarching responsible investment, engagement and voting policies. Twenty-nine asset managers carry out research to identify ESG trends, apply ESG screens and proactively monitor the ESG performance of portfolio companies. Additionally, all 30 asset managers define who has oversight of responsible investment and its implementation and have dedicated ESG specialists in their teams.
Japanese asset managers are leading the way in Asia
The report highlights opportunities for Asian asset managers to improve transparency around responsible investment activities and to reinforce their active ownership practices. For example, neither of the two Chinese asset managers disclose information regarding their engagements with investee companies over ESG issues, and only four of the Asian asset managers (all Japanese) disclosed their roles in collaborative engagement initiatives. Of the Asian asset managers featured, only one reported support for ESG resolutions and just two disclosed their full proxy voting records.
As ESG integration becomes the norm in asset management, expectations from asset owners, regulators, and civil society, including those in Asia, for asset managers to better address climate change and nature loss will keep growing. This is due to stakeholders looking increasingly to their asset managers to effectively manage ESG risks, while driving real world tangible change through their investments and stewardship activities. Consequently, this year and beyond Asian asset managers will need to step up their ambitions and practices to match current best practices in responsible investment.
WWF’s Senior Vice President of Asia Sustainable Finance, Dr. Keith Lee, said, “COVID-19 is a manifestation of the risks associated with the destruction of natural capital, which is vital to our collective social and economic wellbeing. As we know, nature loss is intrinsically intertwined with climate change and asset managers will need to address both challenges by adopting robust, science-based criteria in their investments and expectations of Asia’s corporate sector. This will enable them to improve their competitiveness and the resilience of their portfolios, while scaling up their contribution to sustainable development.”
Asset managers must aim to more systematically tackle climate change and pay greater attention to risks from nature loss
In light of global targets to limit climate change to 1.5C, asset managers must clearly outline their ambitions to achieve this goal and set concomitant expectations of investee companies. RESPOND 2021 found that of the asset managers featured:
● 97% integrate climate change into their investment decision-making processes yet only 20% expect portfolio companies to align to the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Further, just 10% require these companies to set Science-Based Targets for decarbonization.
● Only 23% disclose coal and/or fossil fuels sector policies with thresholds to exclude companies deriving substantial revenues from operations in these industries.
● 97% recognize climate change as a risk and publicly support the TCFD. However, only 50% indicate that the responsibility of climate risk management ultimately lies with their board of directors, and only 57% publish a TCFD report or align their own public disclosures with the TCFD recommendations.
● Only 40% disclose a decarbonization strategy; and only 23% have committed to set Science-Based Targets or otherwise align their investments with the Paris Agreement.
Beyond climate change, asset managers are not yet consistently safeguarding against natural capital loss in their investment activities despite the significant risks they present to the economy and society. The RESPOND 2021 analysis found that:
● Respectively, (1) 73% and (2) 80% of the asset managers integrate (1) water-related risks and (2) deforestation or biodiversity loss into their investment decision-making processes. However, only 13% expect their portfolio companies to practice water stewardship. Moreover, only 30% require investee companies to obtain multi-stakeholder sustainability certifications or standards to address deforestation and biodiversity loss (e.g. RSPO, FSC, etc.).
● Surprisingly, just 17% integrate ocean sustainability and marine resource depletion in their investment decision-making processes; and only one asset manager expects investee companies to obtain or support relevant sustainability standards to safeguard against these risks.
The RESPOND report is based on a TCFD-aligned framework developed by WWF to help Asia-based asset managers strengthen their responsible investment practices to meet their clients’ expectations both now, and in the future. The report accompanies an update to the RESPOND online interactive platform that lets stakeholders explore the analysis in more detail. By using the RESPOND tool and framework, asset managers can better play a pivotal role in the transition towards a sustainable and net-zero economy.
Michael Woolley, Head of Sustainability, Eastspring Investments, said, “At Eastspring Investments, we are committed to a continuous journey of improving our responsible investment approach and capabilities, so as to better address risks and opportunities related to material environmental, social and governance impacts, including climate change. In this regard, RESPOND serves as a valuable resource in terms of helping us identify focal areas for improvement and understand industry best practices.”
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About the report
WWF’s 2021 report on responsible investment practices ‘RESPOND’ is an update of WWF’s 2020 ‘RESPOND - Resilient and Sustainable Portfolios’ report
. The report benchmarks 30 asset managers in Europe and Asia against WWF’s six-pillar responsible investment framework (Purpose, Policies, Processes, People, Products and Portfolio).
Materials reviewed as a part of this analysis include the latest annual, sustainability, and RI reports; public statements and policies; investor presentations; press releases; and other information published on asset managers’ websites by 31 October 2020, in addition to 2020 PRI Transparency Reports
About the RESPOND tool
(Resilient and Sustainable Portfolios that Protect Nature and Drive Decarbonization) is an interactive online tool
developed by WWF to help asset managers improve portfolio resilience and alignment with a low carbon and sustainable future through the application of science-based approaches to responsible investment (RI). The tool allows users to explore how leading asset managers are implementing RI and also understand opportunities for further leadership. It is based on a WWF framework
that represents a best-practice architecture for responsible investment and is aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the Principles for Responsible Investment (PRI).