The biggest asset managers in the world are failing to invest in accordance with the climate change goals set out by the Paris Agreement, according to a report published today by Influencemap.
Influencemap is a newly launched platform that examines the asset management sector through a climate lens, looking at their portfolios, investor engagement and shareholder resolutions.
The 15 largest asset managers globally, which collectively manage $37trn in assets across all asset classes, are "between 16% and 21% deviated from a Paris Aligned target", the report has shown.
This means they are investing more heavily in so-called "brown technologies" rather than "green technologies" in four key industries contributing to climate change: automotive, oil and gas, electric power and coal production.
Overall, the report found that investors globally are "misaligned" with the goals of the Paris Agreement in a significant proportion of their portfolios, with those four sectors worth a collective $8trn in market value.
According to the report, one of the main reason asset managers are struggling to outright divest from these industries, or even employ significant underweights, is their reliance on index-linked trading strategies.
"Increasingly, forceful engagement with the companies in these sectors to hasten their transition to a low carbon technologies must occur if the finance sector wishes to align its portfolios with Paris climate goals," the report said.
The report has said investor engagement with companies has evolved over the past decade, and now focuses on aligning corporate lobbying and business models with the Paris Agreement.
This can be seen in the increasing number of shareholder resolutions on climate lobbying, for example, as well as the Climate Action 100+ engagement process, the group said.
However, it criticised this engagement process for often being "opaque and ill-defined".
In response, Influencemap has devised its own methodology for measuring engagement in order to help the transition to a low carbon economy.
It has revealed the asset management groups that are leading on climate engagement, with European fund giants Legal & General Investment Management, Allianz and UBS Asset Management leading the way.
These companies are "fully transparent in their processes and show specific evidence of engagement with companies on a Paris aligned transition and lobbying practices", the report said.
The asset management arms of AXA and Credit Agricole also performed well.
The laggards, meanwhile, are some of the largest US names: Vanguard, State Street, Fidelity, JPMorgan Chase and BlackRock, which has been under fire for its holdings in fossil fuel giants for a number of years.
Each firm has "poor" transparency around its engagement process and is not signed up to Climate Action 100+, despite collectively owning 10% of the worst climate culprits in the world.
The picture is similar when it comes to voting on climate resolutions, with Capital Group and BlackRock the worst on the group, having voted against 90% of such resolutions last year.
Meanwhile, when it comes to filing or co-filing climate resolutions, the research found that smaller asset managers "appear to be doing the 'heavy lifting' for the entire industry and between them filed 20% of all climate-related resolutions in 2018". This list includes Hermes IM, Sarasin & Partners and Trillium Asset Management.