Asset Managers Found to Have ‘Blind Spot’ Around New ESG Risk

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Advisor Perspectives
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The asset management industry is overlooking what promises to be a major new ESG risk: biodiversity.

A fresh analysis by nonprofit ShareAction found that only 10% of the asset managers it surveyed say they have a dedicated biodiversity policy covering all their portfolios.

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“Even the top-performing asset managers in the survey have a biodiversity blind spot, often failing to take into account the protection of important habitats such as forests, rivers and oceans when managing their investments,” said Claudia Gray, head of financial sector research at ShareAction.

The study, which looked at firms representing a combined $77 trillion in client assets, comes roughly two months after the COP15 agreement put biodiversity firmly on the investing map. Hailed as a deal with similar significance to the 2015 Paris climate agreement, the COP15 accord struck in December has the potential to change the regulatory landscape so that investment managers will no longer be able to ignore biodiversity.

For now, very few asset managers are meeting the moment. ShareAction found that 40% of the firms it surveyed don’t monitor whether investee companies operate in areas of global biodiversity importance. A fifth monitor the metric, but don’t impose any restrictions.

Meanwhile, there’s evidence that corporations and those funding them have contributed to the destruction of the world’s natural resources, with animal populations dropping by an estimated 69% since 1970.

ShareAction found that 34% of the asset managers it surveyed said biodiversity was included in their general responsible investing policy. At the same time, hardly any investments target biodiversity, according to a separate report by Morningstar Inc. The researcher identified only 14 funds with $1.6 billion of combined assets that have strategies based on biodiversity, in a December report.

Overall, the asset management industry continues to trail on environmental, social and governance metrics, the ShareAction survey found. Fidelity Investments and Vanguard Group were among firms at the bottom of its ranking, which measured performance on climate, biodiversity, social and corporate governance issues, as well as stewardship standards.

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