'Significant' rise in fund manager net-zero commitments; action lags behind

The number of fund managers making net-zero commitments saw a “significant rise” in 2021, yet less than a quarter (22 per cent) have demonstrated a credible plan to support these commitments, according to research from XPS Pensions Group.

The group’s Investment Fund ESG Rating Review 2022 found that 81 per cent of managers now have a net-zero commitment in place, compared to 41 per cent in the previous year.

However, the report showed that less than a quarter (22 per cent) could demonstrate a credible plan within specific funds to meet their firm-level commitment, stressing that fund managers need a “concrete plan” to turn these commitments into action.

The report also suggested that managers’ progress on integrating environmental, social and governance (ESG) into their investment approach has been offset by stagnation.

Indeed, although nearly a quarter (24 per cent) of fund managers scored green ESG ratings on XPS’s traffic light system, up from 23 per cent in 2021, the group clarified that this marks a stalling in comparison to the "marked improvement" seen in previous years.

In addition to this, the provider found that 31 per cent of fund managers could not provide any examples of how they integrated ESG into their funds, raising “legitimate doubts” over whether ESG processes are being applied in practice by managers across their funds.

Alternative asset classes, including secure income, real assets and private markets, also lagged behind, particularly in terms of stewardship and engagement, with XPS raising concern over whether sufficient focus is being given to ESG and climate change in these funds.

XPS Pensions Group head of ESG research, Alex Quant, commented: “Despite the emergence of anti-ESG sentiment in the last year, it remains our view that integrating consideration of ESG factors into investment decisions is a critical part of sustainable, long-term investment practice.

“We appreciate that a lot of effort is being spent in this area across the investment management industry, however, it’s clear that there remain areas for improvement particularly around considering climate change and reporting back to stakeholders on ESG outcomes.”

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