JP Morgan AM sees $11.7trn climate opportunity for European asset managers
US asset managers retreating from climate commitments have been met with growing criticism from asset owners, this could offer a window of opportunity for managers on the continent
The past year has been dominated by a series of negative headlines for climate-conscious investors, with some of the world’s largest asset managers publicly retreating from climate pledges.
However, the direction of travel on net zero is by no means a one-way street. On the other side of the Atlantic—in Europe in particular—there is now growing discontent among asset owners wishing to pursue a more ambitious net zero strategy.
Prominent examples include the People’s Pension, which earlier this year divested $28bn from State Street, followed by AkademikerPension, which divested $400m from the US manager, citing climate concerns. Similarly, the New York City pension fund is currently reviewing the net zero strategies of the managers it invests with. Other examples include Dutch pension funds PGGM and PME, as well as CalSTRS, all of whom have made climate commitments a priority when selecting managers.
This growing disconnect between managers and owners could offer a vital business opportunity for firms maintaining a strong stance on climate, according to a recent analyst note by JP Morgan Asset Management.
Mapping the views of the 100 largest asset owners globally, JP Morgan concludes that two-thirds remain committed to both integration and active ownership, and broadly acknowledge the importance of climate change.
This could potentially be good news for European managers, who tend to outperform their American and Asian peers on sustainability, JP Morgan predicts.
Advanced policies and regulatory frameworks—such as SFDR in Europe and SDR in the UK—have played a key role in helping European managers gain a competitive advantage, the firm believes.
Greater commitments to climate stewardship among European managers could also influence the decision-making process of asset owners.
The disconnect between European and US asset managers was also highlighted in ShareAction’s latest Voting Matters report, which shows that US managers have significantly scaled back their support for climate resolutions at AGMs, while European managers have increased theirs.
The campaign group publishes an annual league table assessing managers’ stewardship commitments. This year, all top 30 managers were European, with the exception of Federated Hermes, which ranked 27th. In contrast, the bottom 10 managers were all US-based, with Vanguard, Dimensional, Capital Group and BlackRock ranking lowest on ShareAction’s league table.
JP Morgan notes that the reversal by asset owners has so far been limited, with only a few organisations leaving the Net Zero Asset Owner Alliance. Indeed, some estimates suggest that $17.9trn in assets under management are overseen with consideration for sustainability and active ownership. However, this figure includes a significant portion of assets managed in-house—particularly in Europe, where only 20% of assets are managed by third-party firms. By contrast, outsourcing investment management is more prominent in Oceania and Asia, JP Morgan observes.
Even so, this still leaves $7.3trn in assets globally that are covered by sustainable investing policies and are managed externally. Asia represents the largest opportunity in terms of total assets ($3.4trn), followed by North America ($1.5trn), almost on par with the Middle East ($1.4trn). Meanwhile, Europe is notably behind, as its largest asset owner (NBIM) relies on internal capabilities.
Another way to frame the opportunity is by considering PRI membership among asset owners, JP Morgan suggests. The investor network currently includes asset owners with a combined AUM of which $11.7trn is externally managed.
JP Morgan predicts that Amundi, DWS, Schroders and abrdn are among the managers best placed to benefit from persistent asset owner appetite for credible climate strategies. Amundi and DWS are considered to be in the strongest position to take advantage of this trend, due to both their size and their passive offerings, the firm believes.
US managers scale back support for climate resolutions while Europe doubles down
The People's Pension moves £28bn out of State Street citing stewardship misalignment
