Only a few local asset managers are keeping up with global best practice when it comes to addressing the climate risk in their portfolios.

This is the key message from a new report released by shareholder activist organisation Just Share. The report surveyed 31 South African asset managers, including both the largest players in the industry and a number of smaller firms.

‘Our survey results reveal that while there are encouraging signs of local asset managers adopting the necessary approaches to successful, effective climate risk integration, relatively few of them demonstrate excellence when assessed against international best practice standards,’ Just Share stated. ‘Those that do align with international best practice do so in some areas, but not in all.’

Just Share said the report aimed to help both clients and the industry itself understand how climate risk was being addressed by asset managers and to identify areas for improvement.

‘Many asset managers disclose information, and run extensive marketing campaigns, which aim to convince existing and potential clients of their responsible investment credentials,’ the report noted. ‘However, there is no standard format or requirement for this information, and no professional body or other entity in South Africa that analyses and verifies the credentials communicated by asset managers in their public disclosures and marketing materials.

 
‘As a result, there is no way to distinguish between those asset managers who are taking climate risk seriously and those who are not.’

Transparency
As a starting point, Just Share noted that international best practice is for asset managers to be fully transparent about their approach to climate risk so that clients can assess how much of an impact they are having. In South Africa, however, transparency is ‘patchy’ and this means assessing how effective they are is difficult.

Notably, seven of the survey respondents do not report publicly on engagement activity or results at all. Eight provide only a summary. Just three provide a comprehensive public report on their activities. One provides this only to clients.

Respondents were also asked what their engagement priorities were. Significantly, not a single one placed importance on discussing with companies the need to withdraw from ‘trade associations misaligned with the low-carbon transition’.

‘This is an engagement priority for many of the world’s biggest institutional investors, and the response is illustrative of the lack of transparency and awareness in South Africa in relation to corporate climate lobbying,’ Just Share noted. ‘The language used by respondents in relation to their climate-related engagements with companies still tends predominantly towards “encouragement” and “assistance”.

 
‘South African managers remain reluctant to move beyond this approach in managing climate risk. However, if integration of climate risk across portfolios is not accompanied by more effective active ownership, it will remain extremely limited in terms of real world outcomes.’

The organisation recommended that asset managers should publicly disclose a range of factors, starting with their policy on climate change, and including their engagement priorities and full proxy voting record.

Notably, the survey also found that just eight of the 31 managers have specific board members that have oversight of climate change risks and opportunities. Only six have a specific executive management position accountable for climate change integration.

Global best practice is, however, for C-level or equivalent leadership to have sign-off on responsible investing activities.

‘Limited board-level support for climate change integration can hamstring progress in terms of investment strategy development and implementation, as more junior staff (particularly analysts) are expected to drive the take-up of comparatively innovative, somewhat specialised approaches to investment decision-making,’ Just Share said.

The Just Share report follows shortly after RisCura produced an analysis of engagement practices among local asset managers. That too found meaningful room for improvement.

The full Just Share report can be downloaded here.