Almost eight out of 10 asset managers now expect a ‘disorderly transition’ according to the latest responsible investment survey by LCP.
Its annual survey showed however managers remain committed to responsible investment and sustainability objectives, despite these concerns and the backlash against ESG, particularly in the US.
Overall survey showed responsible investment (RI) issues were as important this year as they had been for the 12 months before. However the LCP survey showed thaere remained material difference in how managers were addressing these issues, depending on the region they operate in.
One key finding was the significant rise in the number of asset managers now expecting a ‘disorderly’ transition, with the expectation that the global economy will fail to meet the Paris Goals and limit emissions and climate warming.
The survey found that the majority of asset managers are working towards net zero emissions, for at least some of the assets they manage (66 per cent). But despite this an overwhelming majority of managers (77 per cent) said now expect a disorderly climate transition — a 20 percentage point increase on the 2024 report.
Of this managers working towards net zero engagement remains a key tools, used by 95 per cent of managers to encourage investee companies to implement credible transition plans. A significant proportion of UK and European managers (64 per cent) said they also engaged with regulators and policymakers to promote system‑level decarbonisation. However this was more limited among North American asset managers.
This Responsible Investment (RI) Manager survey also showed that when it came to board oversight, ESG and stewardship oversight is now near universal (93 per cent) at the board level. However, this has not translated into mandatory training, which remains low among board members (27 per cent) compared with staff (81 per cent).
The report found that scenario analysis remains an important tool for climate risk management. It said most managers now use quantitative and qualitative physical and transition risk analysis for at least some strategies, yet 14 per cent still do not use climate scenario analysis at all.
There was also fairly static participation with broader coalition groups. Around a third of managers in this study said they were “unsure” whether initiatives such as the Net Zero Asset Managers initiative and Climate Action 100+ will play a significant role in the investment industry over the next five years.
LCP’s RI experts said that with the political and regulatory backdrop expected to remain challenging over the year ahead, asset owners need to look closely at how the asset managers approach RI issues.
It says this can mean going back to basics by encouraging managers to make improvements in stewardship practices. LCP says this also involves meeting with other managers to find out what market-leading RI approaches look like and how they might align with the asset owner’s investment objectives.
LCP senior investment consultant Laetitia Anstee-Parry says: “The results suggest the industry is adapting rather than retreating on responsible investment, which is encouraging in the current climate. Manager approaches still vary, so asset owners need to understand how their managers invest and engage with them to ensure alignment with their own objectives.”
LCP principal Sapna Patel adds: “Addressing systemic financially material risks requires action on many levels, including companies, industries and policymakers. Investment managers have an important role to play through wider conversations that influence how these risks are addressed, opening up opportunities for real world change.”