European asset owners have expressed disappointment over the departure of some major US asset managers from the collaborative investor engagement initiative Climate Action 100+ (CA100+).
Last week it was revealed that JP Morgan Asset Management (JPMAM), PIMCO and State Street Global Advisors (SSGA) had exited the coalition, and that BlackRock had transferred its participation to its international arm, withdrawing its US-based assets in the process.
Combined assets under management of the coalition have come down by some $14.5trn to $54trn as a result of the exit decisions by the US firms, which gave varying accounts of the reasons of their departure.
State Street and PIMCO both indicated that the new, more activist ‘Phase 2’ approach to engagement of CA100+ that was first announced last June was the reason for their withdrawal.
“The enhanced Climate Action 100+ Phase 2 requirements for signatories will not be consistent with our independent approach to proxy voting and portfolio company engagement,” an SSGA spokesperson commented.
JPMAM, on the other hand, claimed it had not renewed its CA100+ membership because it did no longer deem it necessary as it had now invested in its own investment stewardship and engagement team.
“Given these strengths and the evolution of its own stewardship capabilities, JPMAM has determined that it will no longer participate in Climate Action 100+ engagements,” a spokesperson said.
The exits of the US asset managers do come, however, amid intense politicisation of the consideration of ESG matters in investment in parts of the US, as is exemplified by BlackRock’s decision to only withdraw the assets it managed on behalf of US investors.
The new Phase 2 approach of CA100+ “will require signatories to make an overarching commitment to use client assets to pursue emissions reductions in investee companies through stewardship engagement”, BlackRock noted in a press statement.
It added: “In our judgment, making this new commitment across our assets under management would raise legal considerations, particularly in the U.S.”
BlackRock also noted that most of its US-based clients have not included decarbonisation as an investment objective in their mandates with the asset manager while all of its largest European clients have net zero commitments for their organisations.
‘Sad situation’
An executive director at one continental European asset owner said the exits were indeed not all that surprising given the political environment in certain US states, and somewhat understandable.
“It’s a sad situation but I can’t totally blame them,” he told IPE, indicating he could speak more frankly by staying anonymous.
Asked about consequences for the asset managers’ business, he said he thought they would face a “slight handicap” when it came to competing for mandates, although any European asset manager taking the same path would be “very heavily penalised”.
The US managers’ withdrawal from CA100+ was the materialisation of a growing divide between US and Europe, he added.
Commenting on the news on social media, Mark Fawcett, the chief executive officer of NEST Invest, said it “doesn’t feel like a positive development” and that he feared the politicisation of ESG in the US was only going to get worse.
At AkademikerPension in Denmark, CEO Jens Munch Holst said the departure of JPMAM and SSGA, and the partial withdrawal of BlackRock, “pose a setback to global engagement on climate change”.
While this may be the case, as of only a few months ago there was a waiting list to join CA100+ and investors like Church Commissioners for England have confirmed their support for the engagement initiative.
“These recent decisions do not call into question our involvement in Climate Action 100+,” a spokesperson for the asset owner told IPE.
Asked if the Church Commissioners would reconsider mandates if managers back away from CA100+ he added: “We regularly reassess our managers’ responsible investment practices and take their stewardship commitments into consideration.”
Dutch pension fund Oak Pensioen, which has a developed market equities mandate with SSGA that includes engagement and voting, said it still had to assess the consequences of its asset manager exiting the CA100+ coalition.
“We haven’t yet heard from State Street about this and will ask them what this means for us. But for now, we assume State Street’s decision to exit does not have an impact on our sustainability policy,” said Paul de Geus, a trustee at the €4.5bn fund.
Commenting on social media, Adam Matthews, chief responsible investment officer at Church of England Pensions Board, said it was “deeply regrettable” that some fund managers had decided to withdraw from CA100+, but that he welcomed BlackRock International’s decision to confirm its membership.
He also asked if the recent developments showed further that “we need clearer asset owner leadership and collaboration that enables asset managers to meet our needs”.
Positive effect
For Mark van Baal, the head of Follow This which leads climate engagement with oil and gas companies, the exits of “half-hearted” members of the climate action coalition could also have a positive effect.
“I have seen myself that most Climate Action 100+ members did not follow the action by their own engagement leads,” said Van Baal. “PGGM and MN, the “lead investors” for the oil and gas sector, voted in favour of my resolution for carbon reduction goals but 80% did not support it,” he added.
The UN-backed Net Zero Asset Owner Alliance recently also revealed it was doubling down on its expectations of asset managers, with asset owners warning investment managers needed to ensure their net zero pledges were being taken up by senior leadership or they would start losing out on mandates.
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