The announcements that asset manager giants have left the Climate Action 100+ (CA100+) initiative has caused responsible investors to review positions in their funds, while others have said the move is “not surprising” for passive players.
On Thursday (16 February), Reuters reported JP Morgan Asset Management (JPMAM) and State Street Global Advisors will not be renewing membership of the investor-led initiative – which aims to engage with 170 companies on emissions reductions – this year. Meanwhile, BlackRock transferred its membership to its international arm, effectively reducing its involvement.
JPMAM said it would no longer be participating in CA100+ engagements as it had evolved its own stewardship capabilities.
“JPMAM is not renewing its membership in CA100+ in recognition of the significant investment it has made in its investment stewardship team and engagement capabilities, as well as the development of its own climate risk engagement framework over the past couple of years,” a spokesperson said.
“The firm has built a team of 40 dedicated sustainable investing professionals, including investment stewardship specialists who also leverage one of the largest buy side research teams in the industry.”
Meanwhile, State Street said it was leaving following the phase two changes made to CA100+ in June last year.
A statement from the group said: “After careful review, State Street Global Advisors has concluded the enhanced CA100+ phase two requirements for signatories will not be consistent with our independent approach to proxy voting and portfolio company engagement. As a result, we have decided to withdraw from CA100+.”
See also: – CA100+ launches ‘words to actions’ phase for corporates – ESG Clarity
Criticism
Last year, the initiative said it had consulted its signatories about its next phase and as a result refreshed its three goals, evolved the net-zero company benchmark, enhanced the ways in which investors can participate, and made marginal updates to its focus list of companies to engage with. The emphasis was on the implementation of corporate climate transition plans and move on “from words to actions”.
Prior to this in 2022, CA100+ faced criticism as ShareAction issued a statement saying CA100+ had achieved little in its five years of existence, lacked transparency and companies were not using their influence – some $68trn of assets at the time – to drive down emissions.
US asset managers
JPMAM and State Street’s move comes after Vanguard exited the Net Zero Asset Managers’ initiative in 2022 citing at the time this was to “provide clarity its investors about the role of index funds”. Vanguard never joined CA100+.
“These moves [from JPMAM and State Street] add to the evidence US asset managers in particular are much more comfortable demanding climate disclosures from companies than specific action – not that much more evidence was needed,” commented Lindsey Stewart, director of investment stewardship research at Morningstar.
“Their voting and engagement record on climate issues has been consistent with this view for much of the last year and a half.”
JPMAM, Vanguard and State Street Global Advisors are among the world’s largest asset managers with $41.2trn, $7.2trn and $3.6trn in assets under management respectively.
In the US, Republican aversion to ESG investments has been well documented. Reuters reported last March a group of Republican attorneys generals criticised US asset managers membership in these industry groups and described what it called “potential unlawful coordination” within CA100+. Following the news of the departures, Montana’s attorney general Austin Knudsen called the moves by the three companies “great news” and said, “we need every asset management firm to follow suit”.
‘Veils and mirrors’
However, Rebecca Kowalski, company director from Overstory Finance and member of the ESG Clarity Committee, said the departures “smacks of cowardice” and as a result her firm will be reviewing its position in a JPM fund.
“I’ve just received an email from JPMAM, having asked them about the implications on this on their sustainable investment fund strategies.
“People might be surprised to hear that, no matter how strongly I feel about climate change and the role of the fossil fuel industry in that, I am always conscious that not everyone shares my views and I don’t want to upset anyone.
“I therefore caveat my remark with full respect to any JPM employee who genuinely endeavours to tackle the climate crisis through their work or indeed is simply fulfilling their finance first role to pay the bills. However, the response I got from JPM smacks of veils, mirrors and most of all cowardice.
“I have had [JPMAM’s] Emerging Markets Sustainable Equity on my preferred fund list but will definitely be reviewing this. I have serious concerns about conflicts in engagement activity, commitment of resource and values to positive environmental outcomes and the message this sends about sustainable finance to the public.”
Damien Lardoux, head of impact investing at EQ Investors, said the wealth manager does not hold any JPMAM funds but was still “very disappointed” to see the announcement.
“We are not convinced about the argument about going solo in its engagement on those topics as CA100+ alongside ShareAction have shown over the years that collegial engagement is really successful.
“This kind of news is seen as orange flags to us. It does not send the best message to investors, especially those like EQ Investors that have been working with CA100+ for years.”
See also: – CA100+: Companies are ‘undermining’ climate policy
The new requirements put in place last year by CA100+ are “not onerous requests at all”, according to Ita McMahon, partner of investment management, Castlefield.
“The phase two requirements ask companies to make sure they’ve got good governance structures in place to oversee climate risk, to reduce greenhouse gases and to publish transition plans.
“We’ve been engaging systematically on net zero with our investee companies for the past couple of years, and we’ve generally found that company management are positive and want to do their bit to reduce their own environmental impact, so the conversations tend to be very constructive. We’re not typically making requests that aren’t on the corporate radar, although our companies are based in the UK and Europe, so perhaps it’s different in the US.”
Passive players
Patrick Thomas, head of ESG investing at Canaccord Genuity Wealth Management, echoed the sentiment from Morningstar’s Lindsey that leaving CA100+ made sense for more passively oriented businesses as they have “difficulties engaging in very targeted, specific activism from a fiduciary perspective”.
“Ultimately, asset managers were never in the business of telling a CEO how to run their company so climate activism put them in a tricky position, it’s a grey area,” he said.
However, he added he had “difficulty understanding some of the rationale given by less passively oriented businesses”.
“Yes, you can and should do your own engagement, but CA100+ is really about teamwork being an effective driver of pressure. This may have disappointed in practice so far, but it remains an important lever.”
Responding to the groups’ departure from the initiative, a statement from CA100+ said: “More than 700 investors are committed to managing climate risk and preserving shareholder value through their participation in the initiative. Since its inception, CA100+ has experienced remarkable growth – and that has only continued. Last autumn alone, more than 60 new signatories joined, and we expect strong interest to continue. Importantly, the initiative continues as intended with hundreds of global investors still committed to engaging 170 companies – in this respect, CA100+ remains the largest investor-led engagement initiative on climate change.
“In addition, CA100+ has been consistent in its three goals, albeit with an enhanced ask of companies to implement transition plans – a natural and logical evolution – for phase two. Similarly, the initiative has been consistent in its requirements of signatories.”
Meanwhile, the Shareholder Commons argues that BlackRock – who also dropped it’s corporate membership of CA100+ – “fails to serve its clients’ best interests” by only pushing for greenhouse gas emissions reductions that will improve the financial return of the individual company in question, rather than attempting to preserve the economy as a whole.
“In its 2030 Net Zero Statement, BlackRock says: ‘Our role is to help [companies] navigate investment risks and opportunities, not to engineer a specific decarbonisation outcome in the real economy.’ But optimising a diversified portfolio’s long-term value requires a significant decarbonisation of the real economy, and investors have a unique set of tools to engineer it,” said Sara E. Murphy, chief strategy officer of The Shareholder Commons.
“Limiting those tools to changes likely to improve individual company financial performance is aiming at the wrong target. Instead, investors should steward companies to emission levels that optimise macroeconomic outcomes regardless of the impact such reductions have on any individual company’s financial returns.”
