Prior to the shock of COVID-19, the major theme in asset management was environmental, social and governance (ESG). However, research has suggested that some of the largest asset managers in the world aren’t doing anywhere near enough to combat some of the issues at the heart of ESG.
According to a report by ShareAction, an NGO that grew in notoriety after revealing that the world’s largest asset manager BlackRock had voted against shareholder proposals on climate change last year, many firms are failing to fulfil their ESG rhetoric.
In the group’s recent report, ‘Point of no return’, ShareAction stated that while 76 percent of asset managers state they have a commitment to human rights in their policy documents, on closer scrutiny it becomes clear that these efforts do not go nearly far enough.
Just four percent of managers have a dedicated policy on human rights, which leaves 72 percent of managers only covering human rights in wider ESG policies. Another 9 percent only have human rights policies covering specific funds and mandates (i.e. ESG specific funds) and some 15 percent still have no policy at all.
US asset managers lag far behind those in Europe and Asia Pacific. Just 15 percent of US asset managers assessed have policy commitments across all portfolios under management, compared to 78 percent of European managers.
The majority of asset managers also lack commitments to human rights in their voting policies. While 53 percent say they have a voting policy that covers human and labour rights, few make specific commitments.
Less than half of all the asset managers surveyed have identified human rights risks. Where they do identify them, they tend of focus on material risks, particularly reputational, for example exposed labour rights abuses in a companies’ supply chain, and operational, for example staff unrest.
Even fewer asset managers, however, are able to identify their impact on human rights issues. It is clear that most managers lack sufficient due diligence to identify salient human rights impacts – that is to say the human impact of a company’s operations. In fact just 9% of managers identify the negative impacts that may result from their investments, for example child labour in agricultural supply chains, or labour issues in the garment sector.
Much like the negative impacts, few asset managers (16 percent) were able to identify the positive social impacts of their investments. These, however, were largely focused on specific ESG funds or mandates, such as positive impact fund options.
Too little, too late
Some 61 percent of asset managers have a weak or non-existent approach to engagement on human rights, while an additional 20 percent only take a reactive approach. Reactive engagement takes place after a human rights abuse has occurred, focusing mostly on the material, or the financial risk, to business.
While this is important, it is often too little too late when it comes to mitigate the abuse – and often fails to account for the severe salient issues. Where asset managers are engaging with the companies they mostly focus on supply chain due diligence, followed by gender, workforce conditions and wages.
While there are pockets of leadership across the asset management sector, the majority of managers appear to be addressing human rights in an ad-hoc and reactive fashion, and only where they consider it financially material. This falls short of the Sustainable Development Goals and huge opportunities are available to asset managers to build a sustainable and resilient economy for the future.
Given ShareAction and fellow NGO ClientEarth’s impact on asset management, it’s unlikely any titan of the industry will want to be ‘named and shamed’ by the group. Larry Fink, BlackRock chief’s letter to its investors and investee companies earlier this year shows the power these groups possess. Avoid their guidance at your peril.
