Which Aussie asset managers fell short in ESG rankings?

Some 11 Australian asset managers have been highlighted by Morningstar as receiving a low ranking for their ESG commitments, while one has received the highest score.

The Morningstar ESG Commitment Level Landscape report qualitatively evaluated 108 asset managers across the globe.

The report aims to help ESG-minded investors assess a fund manager’s alignment to their own preferences by examining the firms’ sustainable investing philosophies and stewardship. 

Some 31 names were ranked in the low category, which included 11 Australian firms such as Allan Gray, Colonial First State, Bennelong and GQG Partners. 

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Low-ranked firms are slower in adopting ESG processes, only doing so once it has become common practice or regulatory requirements, or avoid ESG considerations to align with client preferences. In addition, sustainability-focused funds make up a small percentage of their overall assets. 

The basic category saw the highest number of asset managers at 48. In particular, seven Australian managers scored as basic. 

This included AMP Capital, Ausbil Investment Management, Bell Asset Management, Betashares, Dexus, DNR Capital and First Sentier Investors. 

The next category was advanced, wherein 21 managers scored. Out of the Australian firms, Alphinity Investment Management, Altius and Melior earned this ranking. 

Eight managers earned the highest level of leader, including Australian Ethical in the local market. The other seven were Affirmative Investment Management (UK), Boston Trust Walden (US), Domini (US), Impax (UK), Parnassus (US), Robeco (NL) and Stewart Investors (UK).

Australian Ethical was recognised for its “robust integration of ESG research into all sustainability-focused solutions, spanning all asset classes”.

The firm’s investments passed comprehensive ethical, sustainability and ESG screening, Morningstar said. Additionally, they avoided any investments that violate human rights or exacerbate climate change.

“This distribution reflects the variety of the marketplace, which includes large, diversified asset managers as well as sustainability-focused firms,” the report stated.

Hortense Bioy, Morningstar global director of sustainability, observed that only five firms changed ratings out of the 50 firms reviewed this year, demonstrating the asset managers’ commitment to sustainability remaining quite stable.

“The ESG backlash in the US and accusations of greenwashing have led some asset managers to backtrack on their ESG commitments. 

“These tend to be managers with low or basic ratings, so their shifting positions haven’t come much as a surprise. Managers with advanced or leader ratings have demonstrated consistent commitment to sustainability,” she commented.

Sustainable investing professionals have observed the growing trend of ‘greenhushing’, where fund managers remove or drastically reduce available information on their responsible investing credentials to minimise greenwashing risks. 

According to Dugald Higgins, head of responsible investment and sustainability at Zenith, this approach will not help funds in the long term.

Notably, the three largest index fund managers, BlackRock, Vanguard and State Street, earned either basic or low rankings. 

The report attributed this to their constrained ability to lead on sustainability matters due to most of their assets tracking non-ESG indexes.

Morningstar reminded sustainability-focused investors to be discerning when selecting managers due to an increased number of fund choices. 

“Buying an ESG-focused or sustainable fund without doing proper due diligence on the provider could lead to disappointing results,” the report added. 

The research firm used three factors to assess each asset manager: philosophy and process, resources and active ownership.