Asset owners fall short on climate policy stewardship research finds

2024 has been the year of elections, with more than half of the world's population taking to the polls. With voters having made their choice, climate-conscious investors are now anxiously awaiting the climate policies this might translate into. Potential backpedalling on climate commitments, particularly in the US poses a real challenge for institutional investors, particularly those with bold net zero targets but holding portfolios dominated by government debt. 

This is why organisations such as the Net Zero Asset Owner Alliance increasingly highlight the importance of policy stewardship. But does this actually translate into action? New research by InfluenceMap assessing  the world’s largest asset owners, representing around $17tn in assets, on their influence over climate policy suggests the results are mixed.

US pension funds and UK insurers rank highly for their stewardship on climate lobbying, though the majority of asset owners scored below average, according to new analysis by InfluenceMap.

The evaluation assessed several factors, including stewardship of climate lobbying, voting behaviour, and direct and indirect climate policy engagement.

Overall, InfluenceMap concluded that, despite some entities performing positively in one or more assessment areas, “no asset owner has fully utilised all its various levers of influence to push for government policy action to achieve net zero by 2050”.

When it came to stewardship of climate lobbying, the independent thinktank assigned investors stewardship scores ranging from A- to F. UK insurer the Phoenix Group scored the highest, being the only investor to achieve an A-, while Aegon followed closely with a B+.

US pension funds New York City Retirement Systems (NYCRS), New York State Common Retirement Fund (NYSCRF), and California State Teachers’ Retirement System (CalSTRS) also scored highly, receiving grades ranging from B to B+. Meanwhile, Norway’s Government Pension Fund Global was the only European pension fund to be rated a B.

However, InfluenceMap’s scorecard found that three-quarters of asset owners scored a D+ or below, “demonstrating an overall lack of stewardship on climate policy engagement”. The asset owners with the lowest scores included the US pension fund Federal Retirement Thrift and India’s Life Insurance Corporation.

Speaking to Net Zero Investor about asset owners’ influence over climate policy, Adam Gillett, climate lead at UK pension fund Railpen, said: “Investors can play an impactful role here – particularly those with a universal owner mindset. We are strongly aligned with the interests of those policymakers and regulators who have a broad or systemic focus, and who are tasked with ensuring the effective functioning of markets. This kind of long-term investor voice should be highly credible and valuable in policy discussions.

“We need clear and consistent policy signals, coupled with ambitious policies to deliver on our global climate goals. Investors must be clear, consistent, and vocal in our advocacy for this.”

Direct and indirect lobbying

In terms of direct climate lobbying activities, the California Public Employees’ Retirement System (CalPERS), NYCRS, NYSCRF, and Dutch pension fund ABP demonstrated policy advocacy aligned with science-based pathways to limit warming to 1.5°C, according to the research.

InfluenceMap noted that these investors had supported specific climate-related policies, including mandatory corporate climate disclosures, regulations to protect shareholder rights, and local and national policies aimed at decarbonisation.

However, when assessing indirect climate policy engagement, only two asset owners, Aegon and NYCRS, were found to have engaged with asset managers on their stewardship practices regarding investee companies’ climate lobbying. These engagements included urging external asset managers to vote in favour of climate lobbying shareholder resolutions.

Alongside this, only Aegon and Allianz demonstrated engagement with asset managers on the managers’ own lobbying activities, the research found.

A spokesperson for the Net-Zero Asset Owner Alliance said: “For asset owners to effectively enact climate policy advocacy, they must engage with their most important strategic partners – their asset managers. Meeting their net-zero commitments will become increasingly challenging without such engagement.”

Gillett added: “Investors can undertake policy engagement directly themselves – and we should continue to do so – but we have many other influencing and leverage points, particularly with our investee companies and issuers, and the many other external parties we work with. Ensuring policy advocacy – both in terms of action and alignment – is built into these relationships can have a powerful multiplier effect.”

However, he acknowledged that investor stewardship faces “fragmentation”, which is why common standards, such as the Global Standard on Responsible Climate Lobbying and collaborative engagement through Climate Action 100+, are so “important”.