Assessment of the climate practices of asset managers
In the context of the climate emergency, investors are increasingly and collectively concerned about systemic climate risks. Many of the world’s biggest asset owners have committed to transition their investment portfolios to net-zero greenhouse gas emissions by 2050 in alignment with a 1.5°C pathway. The International Panel on Climate Change (IPCC) and the International Energy Agency (IEA) make it clear that new fossil fuel projects are incompatible with a credible 1.5°C-aligned trajectory. The key to an effective transition of the global investment industry therefore lies in taking action to ensure these projects are not launched.
Asset owners hold significant potential power and influence within the financial sector due to their ownership of substantial portions of capital. They have the capacity to drive financial flows towards or away from certain sectors in support of the transformation of the world’s energy system. As long-term investors, asset owners are also particularly vulnerable to climate risks, which in the end can affect their beneficiaries (clients, pensioners, contributors, etc.). Since most asset owners invest indirectly by delegating investment decisions to asset managers, robust processes to select, appoint and monitor these managers represent a significant opportunity to address these risks. The next challenge for asset owners is to build a strategy that ensures their managers’ activities are not supporting fossil fuel expansion, to align with their long-term interests.
The asset managers that provide new money to companies pursuing fossil fuel expansion, enabling them to develop and run new projects, and that vote in favor of the management of these companies, should be clearly identified. An analysis of this kind allows asset owners to play a key part in driving up the quality of asset manager standards of practice. They can refuse to entrust new investments to asset managers not acting in alignment with science-based climate guidance, and engage with their current asset manager. We provide detailed recommendations further down.
Reclaim Finance has assessed the climate practices of 25 of the largest asset managers based in Europe and the United States (US), focusing on their support for fossil fuel expansion. We have analysed the climate commitments of asset managers as presented in their exclusion and proxy voting policies, as well as their concrete actions as demonstrated through investments in newly issued bonds and proxy voting records.
Methodology
Reclaim Finance analyzed the climate commitments and concrete actions of asset managers regarding fossil fuel developers, i.e. companies developing new fossil fuel projects and contributing to fossil fuel expansion. We focused on the 5 largest asset managers based in the US and the 20 largest asset managers based in Europe.
The analysis includes three components:
- An assessment of fossil fuel policies, which looks into commitments to restrict new investments to fossil fuel developers and commitments regarding proxy voting for fossil fuel developers.
- An assessment of holdings in recently issued fossil fuel developer bonds.
- An assessment of proxy votes at the 2024 annual general meetings (AGMs) of large fossil fuel developers.
The number of asset managers assessed committed to stopping new bond investments in oil and gas expansion.
At least
The amount invested in recent bonds issued by fossil fuel developers.
The number of votes cast in 2024 in favor of the boards of directors at fossil fuel developers.
Assessment of asset managers
*BNP Paribas committed in November 2024 to stop new bond investments in companies active in oil and gas exploration and production on the primary market. Our assessment of actual investments was based on bonds issued between January 2023 and June 2024 when this commitment was not applied yet.
Recommendations
Reclaim Finance calls on asset owners to use the results of this analysis to review the alignment of their interests with those of their asset managers, and to act on the results.
We recommend to asset owners:
- Publish a clear expectation in their policies that asset managers make new investments in bonds issued by fossil fuel developers conditional on them ending their fossil fuel expansion plans, for all assets under management.
- Publish a clear expectation in their policies that asset managers vote at AGMs against strategic management-proposed resolutions until companies end their fossil fuel expansion plans (such as reelections of directors, approval of the discharge of the boards of directors, and approval of the remuneration of directors and top executives).
- Set a deadline by which they will stop appointing or entrusting new investments to asset managers that don’t meet these expectations.
- Engage any current asset manager that does not meet these expectations to push for an improvement in their climate practices, and plan sanctions for those that continue to show no progress.
- Make fossil fuel expansion a redline in their own internal investment and voting policies.
- Ensure their own policies are applied to all of their assets both internally (in-house management) and externally (through external asset managers).
Only a few asset managers have taken significant steps to align their practices with climate science. For instance, Ofi Invest Asset Management stopped new investments in bonds issued by upstream oil and gas developers and used its 2024 AGM participation to vote against the reelection of a large number of directors at companies with fossil fuel expansion plans. Mandarine Gestion will stop new investments in companies developing upstream and midstream oil and gas projects in 2026, and will exclude them in 2027 if they continue to develop such projects. Ecofi excludes companies involved in the extraction and production of or related to coal, oil and gas, as well as companies involved in non-conventional fossil fuels. AG2R La Mondiale Gestion d’Actifs is another example, with its promise to engage upstream oil and gas developers until 2027, after which it will stop investments if these companies continue to pursue fossil fuel expansion plans.
These asset managers show that ending new investments in fossil fuel developers or voting against the management of these companies can be used as a long-term investment strategy. But there are still too few asset managers engaging in these practices to date. There is therefore an urgent need to encourage all asset managers to improve their practices and broaden the offer of credible, climate-aligned alternatives to asset owners.
