Author: Maha Khan Phillips
Recent research from Redington, the investment consultancy, has revealed that a substantial number of asset managers are still struggling to engage with climate change challenges. Nick Samuels, Head of Manager Research at Redington, talks about some of the challenges the industry is facing.
PI: Redington’s research has revealed that a substantial number – 38% - of asset managers did not have a climate change engagement policy in place. Were you surprised by this figure? Why are a number of firms failing to engage with this issue?
Nick Samuels: Not surprised necessarily, although we're disappointed the figure isn't higher. Our pool of managers spans almost every conceivable asset class, so it is understandable that some are behind others - a pure government bond fund for example won't have given climate as much thought as a sustainable equity fund. If we can see a direction of travel then we can take some comfort from that, and if we can't, we engage with the manager to explain why they need to start moving.
PI: How should asset managers be integrating climate change into their portfolio decision-making? What steps should they be taking?
Samuels: It should be a large part of their ESG assessment at the individual security level and then again at the overall portfolio risk level. How will climate change shape the future returns from this investment, and am I comfortable with the combined climate change risk in the portfolio? Can I reduce this risk without affecting the return potential?
PI: Your findings also show that just 28% of managers currently report on the key metrics used to measure and manage climate related risks and opportunities, as recommended by the Task Force on Climate-Related Disclosures. Why is data and reporting such a challenge?
Samuels: We lack consistent frameworks for calculating and reporting on the data, and a lot of this is quite new and takes time to engage with companies / governments to disclose the information, collate it, calculate it and report back on it. We would hope to see that 28% increase substantially over the coming years.
PI: If asset managers could do one thing in this area, what would you encourage them to prioritise first?
Samuels: It has to start with the measurement, until they are aware of the real climate change risk embedded in their portfolios, they can't take steps to mitigate it.
PI: Are institutional investors themselves engaging enough with these issues, and indeed with their asset managers on these issues?
Samuels: A number of asset owners are engaging with the issues, but it is currently a small minority. We are though seeing increasing numbers of pension funds, wealth managers and local government entities approach us and ask what they should be doing, which is very encouraging.
PI: There are many reports around ‘greenwashing’ in the industry. How much of a concern is this?
Samuels: Greenwashing in the purest sense - i.e. mis-selling something as environmentally friendly when it isn't - is clearly bad, and there is a little bit of that in the investment industry. But the term is often used when a fund house appears to be jumping on the bandwagon, and launching a green fund. That actually needs to happen. There are trillions more dollars needed each year to fix the climate crisis, and we can't rely on a handful of sustainable funds to bridge that gap. Climate strategies need to go mainstream, and quickly. If that is "greenwashing" then so be it.
Nick Samuels, Head of Manager Research at Redington