Insights

Investment groups take a look in the mirror 

With SDFR barrelling down the autobahn, are asset managers ready to meet their own demands?

In the world of sustainability, expectations have, to date, converged primarily on the activity and disclosures of corporates. By extension, fund managers have been held to account for the environmental and social impact of their portfolios as a basket of constituents. 

But what of the asset management companies under which those portfolios sit? 

There has been a growing focus on the sustainable-business targets of investment managers. Their shareholders, like those of any other company, are paying attention. So are their clients, as consultants and asset owners respond to swelling consumer interest in greener pensions. 

That was particularly evident this week, when the world’s largest asset manager, more comfortable drawing attention to the activities of other companies, found itself in the spotlight. 

In his annual letter to CEOs, published in January, BlackRock chief Larry Fink urged the leaders of investee companies to be “good corporate stewards” and serve all stakeholders rather than just shareholders. In his annual letter to shareholders, published on Wednesday, Fink upheld that request, promising to “reset behavioural expectations” across his own company in response to a series of allegations about discrimination and sexual harassment. 

“Just as we ask of other companies, we have a long-term strategy aimed at improving diversity, equity and inclusion at BlackRock,” he added. 

It was not the only time this week that BlackRock held itself to the same standards to which it holds investee companies. On Monday, Bloomberg reported the asset manager is “breaking ranks with peers on Wall Street” with a racial audit of its operations following a request from a shareholder. On Wednesday, the Wall Street Journal reported it had struck a financing deal that links its lending costs for a $4.4bn credit facility to hitting staff-diversity and other sustainable-business targets—as well as growing assets in its ESG funds.

Laudable, but the buck doesn’t stop there. 

The advent of disclosure regulations, in particular the Sustainable Finance Disclosure Regulation (SFDR), is converging with consumer and investor demand for more transparent and illuminating indicators. Soon, asset managers will need to measure and manage sustainability in not one, not two, but three areas. What is the impact of its individual, dedicated sustainable funds? What is it doing at an entity level? And, critically, how does it perform at a product level: as a basket of all of its holdings? 

There is another way in which the sustainable investment market is changing: the move from ESG to impact. Increasingly, the extra-financial issues with which companies and fund managers are expected to engage are expanding from pureplay ESG (or policies and operations) to include impact (or real-world outcomes). How does a company, as an aggregation as its products and services, impact the society and environment in which it operates? 

As they dovetail, these two trends—the move towards evaluating investment groups in their entirety, and the move towards impact—yield an obvious outcome. Investment portfolios are, simply, products. With access to scalable data, it is no more difficult to measure the real-world impact of all of the products of an asset management company than of an oil & gas company; no harder to track the real-world impact of BlackRock than of BP. 

When we created Util, we wanted to build analytics that could evaluate, uniformly, the impact of products, building up to companies, building up to portfolios. Thanks to the scalability of our data, the next stage is investment groups, as an amalgamation of every portfolio, company and product to which it is exposed. As an example, we present below the impact of BlackRock as measured against the UN Sustainable Development Goals.