Asset managers face litmus test in handling of sustainability issues

AMUNDI says it’s expecting to see more inflows as a result of what it describes as ongoing adjustments in institutional mandates triggered by a growing desire to manage climate risk.

Europe’s largest money manager, which last month reported a record 2.3 trillion euros (S$3.2 trillion) of assets under management, is already seeing the benefits of its focus on climate, according to Jean-Jacques Barberis, Amundi’s head of institutional, corporate clients and environment, social and governance (ESG). 

An emphasis on sustainability has become “a differentiating element to conquer more business on the institutional side”, Barberis said in an interview. “We remain extremely confident.” 

How asset managers handle sustainability issues such as climate and equal pay is turning into a litmus test for a growing number of long-term investors.

In Europe, Dutch pensions fund PFZW recently reassigned listed-equities mandates worth more than US$60 billion, citing sustainability as a key factor. Managers to have lost PFZW contracts in the process include BlackRock and AQR Capital Management. 

And on Wednesday (Nov 26), it emerged that New York City Comptroller Brad Lander asked three of the city’s pension funds to drop a BlackRock mandate, citing “inadequate” climate plans. The world’s largest money manager oversees US$42.3 billion of index funds for the pensions.

Barberis, who spoke before Lander’s announcement, said that while some adjustments are “quite public”, including a £20 billion (S$34.3 billion) mandate Amundi got from the People’s Pension earlier this year, other reallocations are going on behind the scenes and are therefore “not public”.

Among managers known to be winning mandates is Man Group. The world’s largest publicly traded hedge-fund manager says it has seen an increase in client flows driven by demand for sustainable investment strategies. Man was among fund managers to win business from PFZW earlier this year, gaining a US$13.2 billion mandate in September. 

“It feels like a great time to be at Man doing responsible investing,” Jason Mitchell, the hedge fund manager’s head of responsible investment research, said in a recent interview. 

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Money managers that retreat from sustainable investment pledges are increasingly being turned away when they pitch themselves to major asset owners in Europe, Federated Hermes chief executive officer Chris Donahue said in a recent interview.

Pittsburgh-based Federated Hermes has recently won mandates from large institutional investors in Belgium, the UK and the Middle East, partly as a result of the firm’s continued focus on ESG, Donahue said. 

Legal & General, which lost a mandate with PFZW earlier this year, said the decision was unrelated to its ability to deliver sustainable investment solutions.

Responsible investment is “central to the way we drive long-term value creation for our clients”, a spokesperson for the asset manager said.

The heightened focus on sustainable strategies coincides with a rebound this year in green investment returns, driven in large part by demand for renewables to power AI data centres.

The S&P Global Clean Energy Transition Index is up more than 45 per cent year to date, compared with a roughly 15 per cent gain in the S&P 500 Index.

BlackRock, meanwhile, has faced heat from both Republicans and Democrats over its perceived stance on ESG. Republicans have criticised the firm for appearing overly committed to ESG strategies, while Democrats have said BlackRock doesn’t do enough.

BlackRock says it’s not responsible for engineering “a specific decarbonisation outcome in the real economy” and has warned that a “politicisation of public pension funds” will ultimately hurt savers.

A polarised world

Asset managers “have to be clear on their positioning so institutional investors can pick the ones that are the most aligned with their own positioning”, Elodie Laugel, chief responsible investment officer at Amundi, said back in September. She also noted that money managers increasingly need to navigate “polarised world”.

To be sure, BlackRock remains the world’s biggest manager of sustainable funds with more than US$434 billion in such assets, as defined by Morningstar in its analysis of third-quarter flows. Amundi ranks second-largest, with just over US$200 billion, the data showed. 

BlackRock saw US$44 billion in outflows from sustainable funds in the three months through September; the money was instead reallocated into custom ESG mandates managed by BlackRock for a pension client, Morningstar said. BlackRock’s own disclosures show it managed US$1 trillion in sustainable and transition assets, including customised investment products, at the end of December.

Amundi saw US$2.2 billion in client flows into its sustainable funds in the third quarter. However, Amundi also risks losing mandates.

UniCredit is cutting the amount of money it invests through the French manager amid frustration over fees, Bloomberg has previously reported. 

Barberis said it’s still too early to tell where the current wave of reallocations will end. A clear picture isn’t likely to emerge for a while because the process of changing external managers can take “a good year”, he said.