The vast majority of respondents to a survey of asset owners by Responsible Investor believe consolidation among ESG and sustainability-focused initiatives is needed, with more than half citing those focused on climate change as particularly ripe for action.
RI’s anonymised survey was prompted by several off-the-record conversations with pension funds, as well as recent developments such as the Church of England Pension Board’s decision to leave the Net Zero Asset Owner Alliance (NZAOA) to focus on its membership of the Paris Aligned Asset Owners initiative.
The topic clearly struck a chord with asset owners. We received 23 in-depth responses, several of which stressed the relevance of the issue and expressed an interest in seeing the results.
This is perhaps unsurprising, given the proliferation of investor sustainability initiatives in recent years.
Forty-one percent of respondents revealed that they belonged to between 11-20 initiatives and 55 percent to between 1-10 groups. One asset owner admitted they did not know how many they were signed up to.
Eighty-five percent saw room for consolidation, with one telling RI that the “pace of new initiatives being introduced, and the total number, have become unmanageable”.
“We need to stop the growing number of initiatives and align and improve the ones we have,” wrote another.
The majority highlighted climate change initiatives as particularly ripe for consolidation. One asset owner described this as “an obvious area where there is quite a lot of overlap”.
Another investor suggested that the Principles for Responsible Investment (PRI) could “help co-ordinate across [climate] initiatives”.
Some would like to see consolidation go even further, with one respondent suggesting that investor engagement groups Climate Action 100+ and Nature Action 100 should be combined. “The risks are interlinked and thus the initiatives should reflect this,” they wrote.
The same asset owner also called for a greater focus on “systemic stewardship” by asset owners. There are “lots of systemic barriers that require asset owner leadership”, they added, and “not enough co-ordination [is] happening there.”
There was also concern that duplication might be occurring with emerging nature-based initiatives. One investor noted that they became aware of the NA100 initiative in the same week as seeing coverage in RI “about a different initiative with similar aims about to be launched by the PRI”.
Similar concerns were raised in another response, which said the need for consolidation “is a result of lack of co-ordination between well-meaning initiative sponsors”.
“As we see the growth of nature-related initiatives now (natural resources, biodiversity, water, deforestation, etc), this must be borne in mind to mitigate redundant duplication amongst an even greater proliferation of topic, industry, geography, asset class and investor type specific initiatives,” they added.
Ninety-one percent of asset owners said they periodically review their sustainability and ESG memberships, and the remainder planned to do so in the future.
One UK-based local government pension scheme, which revealed that it is a member of “several initiatives” through its pension pool manager and individually, admitted that it “probably need[s] to have a clearer strategy about how we approach these different memberships”.
Two-thirds of asset owner respondents said they had considered leaving an initiative in the last 12 months.
The most commonly selected reasons were “duplication around goals/aims of initiatives” and “lack of impact”. These were followed by “resource constraints”, “credibility concerns” and “costs”.
Other factors shared by asset owners included attempts to keep the number of memberships down, lack of materiality, and “increasing levels of coercion”.
In one particularly expansive response, an asset owner reported that it was a “challenge” keeping track of duplication across initiatives.
“This perhaps has the effect of asset owners either scatter-gunning with their choice of initiatives involvement, or not understanding properly the relationship between them,” they wrote.
Potential duplication resulting from this could water down the impact of initiatives, the investor suggested.
They added that the question of who leads on initiatives, and why they choose to do so, is an important consideration. “The alignment of priorities and agendas of organising NGOs and participating investors should not be assumed,” they wrote.
The biggest barrier to exiting an initiative was how it might be perceived. This was flagged by more than half of respondents, with funds describing it as a “key consideration” and “the biggest factor”.
One investor cited a “comply-or-else attitude amongst activists and climate campaigners” as a barrier to exiting initiatives. Another raised concerns about the optics of leaving an initiative, given the increasing politicisation of ESG.
“Withdrawals can look like caving to anti-ESG pushback which … lack substantive concerns and are financed by fossil fuel entities to impede responding to climate concerns,” they wrote.
Not all agreed, however. One investor told RI that perception need not be an issue “as long as there is clarity and transparency about the reasons for leaving”.
Fear of missing out was another reason given by several asset owners for sticking with initiatives.
“One barrier is probably the uncertainty of the potential benefits that the initiative could provide,” one investor said. “Many initiatives are also a great gateway to learning and keeping on track on different topics.”
Where’s the benefit?
The Institutional Investor Group on Climate Change and CA100+ were named by respondents as the initiatives they derive the most benefit from, with seven citations each. They were followed by the NZAOA, with four mentions, then the PRI and CDP (three mentions each).
Respondents were less likely to name specific initiatives that they saw the least benefit from being members of, but they did give some insight into characteristics.
Several cited those that have “good intentions” but little focus on outcomes. One asset owner described situations where “we end up having the same conversation two, three, four times but nothing actually comes out of it in terms of actions/outcomes”.