It is a critical time for environmental, social and governance (ESG) investment – with the impetus of investors addressing climate-related issues either waning or going into reverse.
After many big-hitting asset managers left the Net Zero Asset Managers group, which led to the suspension of its activities, some reports suggest many asset managers are not meeting companies on ESG matters.
This could be a slippery slope where ESG no longer remains a key priority.
This follows the Glasgow Financial Alliance for Net Zero (GFANZ) – a group of various financial institutions – to be the latest industry or sector body to change its mission due to pushback on ESG issues.
The group said it will restructure and shift its focus to address barriers to mobilising capital, but will no longer be aligned with the Paris Agreement.
In a statement, the group said: “GFANZ will transition to an independent principals group, led by chief executives and leaders from financial institutions acting to address barriers faced in mobilising capital for the transition around the world – including sovereign wealth funds, financial institutions, and market participants in countries with longer transition pathways.”
Responding to this, Jeanne Martin, head of banking programme at responsible investing campaigner Share Action, said: “We cautiously welcome GFANZ’s new focus on addressing barriers to mobilising capital, which is critical to achieving net-zero by 2050.”
However, she added GFANZ’s decision to walk back on a requirement to align with the Paris Agreement is a “dangerous one”. This “could lead to its members lowering ambition even as climate change impacts like extreme weather are harming communities around the world”, Martin said.
“GFANZ members have a critical role to play in mobilising capital to achieve climate goals,” she added.
The International Energy Agency has warned that private finance needs to contribute $3trn (£2.3trn) out of the $4trn needed annually by 2030 to face down the transition challenges.
Share Action’s research found that banks’ incoherent climate targets are unlikely to shift enough financing away from fossil fuels towards green activities such as renewable energy at the pace and scale needed to avert the climate crisis.
“To be effective in delivering the climate action the world needs, GFANZ and its sub-alliances should reaffirm a requirement to align with the Paris Agreement,” Martin added.
“GFANZ should ensure its members not only mobilise capital for the real economy transition but also phase out from fossil fuels.”
New low
The reappraisal or even rejection of ESG standards by some investors could already be here, at least according to the latest data.
Research by Share Action shows that asset managers’ support for shareholder resolutions aimed at tackling social and environmental issues crashed to a new low in 2024 with less than 2% of proposals being approved, down from more than a fifth three years earlier.
Asset managers who voted against shareholder resolutions designed to protect human rights, nature and climate included the four largest asset managers in the world: Blackrock, Fidelity, State Street Global Advisors and Vanguard.
Collectively managing $23trn (£18.2trn) in assets, more than the GDP of the European Union, these firms, Share Action said, “have an outsized influence through the huge investments they hold in key companies” – yet collectively supported only 7% of key shareholder resolutions.
Share Action’s research reveals an additional 48 shareholder resolutions could have passed had these four asset managers chosen to support them.
Claudia Gray, head of financial sector research at Share Action, said: “This is the worst result we’ve seen from asset managers in the six years we’ve been monitoring their voting performance and shows a worrying retreat from ambition when it’s most needed.”
And she added: “As support for shareholder resolutions hits rock bottom, our rst ever analysis of votes against resolutions proposed by company management paints a similarly bleak and disappointing picture, with asset managers failing to use these votes to hold companies accountable for their social and climate impacts.”
Had asset managers supported them, proposals put forward by shareholders at 190 companies could have improved conditions for low-paid workers and driven urgent climate action, noted Share Action in the report.
This could be of deep concern to asset owners who are putting their faith in asset managers to act in their best interests.
As in previous years, there is a striking gulf in performance between asset managers in the US and Europe.
Supporting 81% of shareholder proposals on average, UK and European asset managers have once again demonstrated greater commitment to responsible investment than their US counterparts.
This, it should be noted, is in the context of higher corporate transparency standards set by regulators in Europe.
But with a strong anti-ESG sentiment sweeping across America, the division between the US and Europe is likely to get even bigger.
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