Good intentions over good returns: do asset managers hold the key to fighting climate change?

The days of just producing good returns to keep investors happy are well and truly over for asset managers. As consumers consider their impact on the environment, they are also scrutinising the impact of the products, services and companies they engage with. There are high expectations that companies change their operations to be more environmentally friendly if they haven’t already done so. Those companies that resist are being named and shamed, and consumers aren’t spending their money with them which is impacting profits.

The asset management industry isn’t escaping this scrutiny and is facing questions about its impact on the environment and wider societal role.  How asset managers contribute to the fight against climate change is now just as important as good returns, if not more so.

Unlike some other industries, asset managers hold a unique position where they can drive change in the businesses they invest in and create a positive impact in the fight against climate change across many sectors and geographies.

Reputational rebuild

Past attempts to drive change have in some cases brought calls of greenwashing, where misleading information has been provided about how environmentally sound a company is – potentially deceiving customers. The ill-advised actions of some have tarnished the whole industry.

Now real action is needed to recover from this reputational dent and rebuild trust by the whole industry.  Asset managers need to take a tougher stance with companies it believes are failing to take their ESG (environmental, social and governance) responsibilities seriously enough. They also need to communicate their actions and operate with full transparency.

The year started with Larry Fink’s annual letter setting out how BlackRock will put climate risk at the heart of its investment decisions. Many hailed it a sea change moment from one of the industry’s leading players; others questioned why it had taken so long.

Words have since been backed up by action. Shortly after, BlackRock intervened in Siemen’s involvement in a controversial Australian coal mining project where the asset manager argued not all sustainability risks had been factored in.

Action-oriented approach

The case also highlights the rise in activist protesters who targeted BlackRock’s Frankfurt office over the matter. Many others in the investment space have come under fire from protesters over their portfolio holdings, including Extinction Rebellion Bristol’s mock ‘working lunch’ outside Hargreaves Lansdown.

While it won’t change the environmental outlook or rebuild trust overnight, the increasingly action-oriented approach is a positive step in the right direct from industry leaders and those who influence them.

Not only are consumers and investors scrutinising company actions but the media is stepping up its focus too. Last month FTfm announced it will be adding sustainable investing and greenwashing as topics for regular coverage.

Those companies that do not engage and act on this hugely important topic will ultimately not survive in the long-term. Consumers and investors will align themselves with, and give their money to, those companies that share their values and understand what they want regardless of industry.