Why asset managers are leaving climate groups
The UK asset management industry was hit last week with another significant departure from climate-focused organisations, as Baillie Gifford dropped its membership of two ESG groups.
The Scottish asset manager left both the Climate Action 100+ group and Net Zero Asset Managers initiative after it became embroiled in a months-long scandal over its sponsorship of literary festivals.
“Our membership has become contested, and this risks distracting from our core responsibilities,” a Baillie Gifford spokesperson told City AM.
“This change in membership status will not affect our commitment to always act in accordance with the mandates given to us by our global client base.”
While City AM understands that there will be no change to the way the fundhouse is managing client money, the departure from the organisations meant to fight climate change is taking some by surprise.
Climate Action 100+ and the Net Zero Asset Managers initiative began in 2017 and 2020 respectively, focusing on helping institutional investors engage with companies on climate change issues.
So why are asset managers leaving these organisations? Two reasons: The US and regulation.
Why are asset managers leaving climate groups?
Sustainable investing in the US has come under significant scrutiny in recent years, despite the early popularity it held during the pandemic.
The issue has been a thorn in the side of giant US asset managers such as Blackrock, who have faced condemnation and attacks from rightwing politicians in the US over their policies.
Last year, Blackrock was sued by the attorney general of Tennessee over its ESG policies, while it has been dropped from the public pension funds of multiple US states due to its support of sustainable investing.
CEO Larry Fink dropped the use of the term ‘ESG’ entirely, stating that it had been “weaponised”.
“US based companies may, quite understandably, need to reconsider the profile of their sustainability related activities,” said Julia Dreblow, founder of SRI Services.
However, she noted that membership to these organisations is “quite different from their ‘actual’ level of activity, including perusing sound investment opportunities, which I hope will be continue on its positive trajectory”.
Other asset management giants, like JP Morgan and Invesco, also left Climate Action 100+ earlier this year.
An Invesco spokesperson told City AM that the company have dropped the group as it believed “our clients’ interests in this area are better served through our existing investor-led and client-centric issuer engagement approach”.
Meanwhile, a spokesperson for JP Morgan Asset Management said the firm had not renewed its membership “in recognition of the significant investment it has made in its investment stewardship team and engagement capabilities, as well as the development of its own climate risk engagement framework over the past couple of years”.
Regulation has been a key factor for the departures from these groups, as firms increasingly beef up their sustainability teams.
When groups like Climate Action 100+ began to surge in popularity in 2021 and 2022, there was little, if any, regulation over claims made by fundhouses in their sustainability credentials.
While this led to a slew of greenwashing scandals, it also meant that asset managers were frequently having to rely on climate groups for guidance over what they could actually be labelling their funds.
Now, that is all changing. The Financial Conduct Authority’s greenwashing rules are already in force, while the watchdog’s Sustainable Disclosure Rules (SDR) are due to become mandatory later this year.
“We are in a period of massive regulatory change right now and as asset management company resources are finite, work needs to be prioritised,” Dreblow explained.
“Legal requirements will always be top of the pile, however, new rules, such as SDR, should soon become ‘business as usual’ – at which point supporting other activities will become possible again.”
In addition, despite some high profile departures from these groups, they are ultimately still growing.
The Net Zero Asset Managers Initiative signed three new asset managers in the last month, and a spokesperson for the group said its signatory base “has continued to grow over the last 12 months”.
Meanwhile, a spokesperson for Climate Action 100+ noted that its signatory base has grown by 90 since July 2023,
“While we are disappointed to see any withdrawals, we respect each investor’s independent decision making based on their individual circumstances,” they added.