Almost 150 investment managers have identified significant gaps in board training and oversight of ESG issues according to LCP’s latest biennial Responsible Investment Survey.
While 69 per cent of managers require RI training for their employees, 23 per cent require it for board members. According to 33 per cent of managers, there is no one on their board of directors who is responsible for ESG and stewardship oversight. LCP warns that, as policy and societal expectations in the ESG space rise, ensuring clear senior leadership, knowledge, and oversight of ESG issues will be critical.
The survey assigns managers scores ranging from 1 (weak) to 4 (strong) based on their responses to ESG issues and stewardship practices such as voting rights and engaging with company management. The findings show that, while many managers are improving their responsible investment practices, not all are keeping up with the rapid increase in expectations.
The survey also revealed that 96 per cent of surveyed managers are now signatories to the UN principles for responsible investment, up from 66 per cent in 2016. In addition, 90 per cent of managers said they interact with policymakers or regulators on industry-wide issues.
There has also been significant progress in monitoring and assessing climate-related risks according to the research. 36 per cent of managers said they had already published a firmwide TCFD report outlining the effects of climate change on their businesses. This is despite the fact that there are currently no regulatory requirements requiring them to do so. 42 per cent of investment managers said they were aiming for net-zero emissions for assets under management at the time of the survey. But 65 per cent of these managers reported that they did not yet have a clear plan in place to meet this goal.
The survey also revealed that voting practices are strong and improving, but the larger engagement agenda remains skewed toward climate change and governance issues. In the fiscal year ending 30 June 2021, the listed equity managers polled cast 97 per cent of eligible voters, voting against management or abstaining at least once at 35 per cent of AGMs. But 42 per cent of managers stated that they do not have a formal escalation policy in place when engagement objectives set for companies in which they invest are not met. According to the survey, managers should become more involved in broader social and environmental issues. For example, 43 per cent of managers stated that they did not or only rarely engage with companies on public health issues.
LCP head of responsible investment Claire Jones says: “It’s encouraging to see many investment managers stepping up to the plate. The majority are taking ESG issues and stewardship much more seriously, with many making their voices heard through voting and improving reporting on climate change ahead of it being a regulatory requirement. But it’s concerning that there is a significant number who don’t have appropriate board oversight, which is out of step with the rapidly increasing expectations in this space.”
LCP senior consultant Sapna Patel says: “While it’s clear that addressing climate change is very much on the agenda for investment managers, their net-zero commitments need to be backed up by clear plans as to how to meet these targets by 2050, and we would also expect managers to improve reporting of climate-related metrics, where coverage of portfolios is still relatively limited.”
“Engagement should also be a key priority for managers, particularly given the recently strengthened UK Stewardship Code. While there has been some progress in managers’ engagement on certain topics, such as climate change, we were surprised that there are some social issues, such as public health, which many managers rarely consider, particularly given the backdrop of a pandemic over the last two years.”