Reuters published today 2017 tables listing sovereign investors in two categories: Leaders and Laggards. I noticed that the laggard table included the assets size of funds, while the leader table did not. So I went to the report itself by the Asset Owners Disclosure Project (AODP) which is leading the effort to blame and shame investors away from fossil fuel companies.
There you find in fact they apply five categories according to how enthusiastically a fund complies with climate change doctrine. From the AODP Report:
The AODP Global Climate 500 Index rates the world’s 500 biggest asset owners – pension funds, insurers, sovereign wealth funds, foundations and endowments – on their success at managing climate risk within their portfolios, based on direct disclosures and publicly available information.
This year also sees the launch of the first AODP Global Climate Index for Asset Managers, rating the world’s 50 largest asset managers on their success at managing the financial risks of climate change for their clients.
It follows the same methodology. Asset owners and managers are scored on three key capabilities which align with the four key areas highlighted by the FSB Task Force on Climate-related Financial Disclosures: Governance & Strategy, Portfolio Carbon Risk Management and Metrics & Targets. They are graded from AAA to D while those with no evidence of action are rated X.
GOVERNANCE & STRATEGY – Organisation structure and approach it uses to oversee climate risk objectives. – Degree of integration of climate risk principles in the organisation’s policies and processes
PORTFOLIO RISK MANAGEMENT – Variety and effectiveness of tools and approaches used to evaluate and manage climate change related financial risks and opportunities. This includes engagement, voting practices, and portfolio management tools.
METRICS & TARGETS – Key metrics used to measure, monitor and compare portfolio climate risk management performance, including the value asset owners have invested in low carbon assets.
The AODP Report applies a lot of lipstick to the numbers in the interest of boosterism for their project and their cause. But a different story is evident from the numbers, according to their own analysis. For example, here are the 2017 results for the world’s top 500 Asset Owners (AUM=Assets Under Management)
|2017 Asset Owners by Rating||# Asset
|Leaders Top 7%||34||$4,163||10%|
|Challengers 7% – 14%||34||$3,103||8%|
|Learners 14% – 22%||44||$3,395||9%|
|Bystanders 22% – 60%||187||$16,556||42%|
|Laggards, Zero X Bottom 40%||201||$12,508||31%|
Unreported anywhere is the fact 73% of the wealth in these funds is in the bottom two compliance categories. In fact the laggard funds are six times as numerous and have 3 times the assets of the leaders. Below is the table of 2017 results for the top 50 Asset Managers (Firms investing on behalf of clients).
|2017 Asset Managers by Rating||# Asset
|AUM US$ Billion||% AUM|
|Leaders Top 4%||2||$1,582||4%|
|Laggards, Zero X Bottom 6%||3||$3,199||7%|
The report on the top 50 Asset Managers shows them more responsive to social pressure. This was also evident in the recent Exxon shareholder climate resolution where two large asset managers made the difference. Even so, more than half of the firms and half of the assets got the bottom two ratings.
Despite some progress in converting capital managers to seek climate virtue rather than capital gains, most of the wealth is still focused on investment return.
Background on the climate financial strategy and Exxon is at How Climate Law Depends on Paris