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November 11, 2008

Report on UK Fund Managers Finds Room for Improvement on ESG Issues
    by Robert Kropp

FairPensions surveys thirty of the largest asset managers and finds relatively strong performance in governance but insufficient attention to climate change and social issues. -- Worldwide assets under fund management reached a record $74 trillion in 2007, conferring great responsibility upon asset managers who represent shareowners. In this historic time, when pursuing short-term gains at the expense of sustainable long-term growth is seen as a contributing factor in the global fiscal crisis, the need for asset managers to engage companies on issues of risk management and transparency become paramount.

Please support
our sponsorsLast year, FairPensions, a UK-based organization that calls for responsible investment by UK pension funds, surveyed twenty of that country's largest asset management firms, and found that "responsible investment practices among top 20 fund managers vary from excellence to apparent absence." The report found fund managers to be generally lacking in attention to corporate responsibility, insufficient on issues of transparency, and slow in integrating environmental issues into investment strategies.

On a more positive note, this year's report by FairPensions, entitled "Investor Responsibility? UK Fund Managers’ Performance and Accountability on ‘Extra-Financial’ Risks", revealed a "clear improvement in the combined performance of the 20 asset managers that were surveyed in both 2007 and 2008, as illustrated by a 23% increase in average performance," indicating a "growing interest in incorporating material ESG risks and opportunities into the investment process."

Overall, however, the 2008 report—which expanded the number of asset managers surveyed to thirty—found "a striking disparity of observable performance on Responsible Investment." The report suggested that "asset managers’ focus on ESG more often than not is limited to governance issues," and only the report's leaders "could explain their policy on environmental and social factors in any detail."

Less than half of the asset managers surveyed could produce evidence that engagement with corporations on ESG issues has produced change in corporate behavior. Furthermore, more than three quarters do not reveal their engagement activities, believing that "full public disclosure would undermine their ability to effectively engage with companies."

FairPensions' report found that three quarters of the asset managers in the top half of its rankings were signatories of the UN's Principles for Responsible Investment (UNPRI), while only one-fifth of those in the bottom half were.

Of the asset managers surveyed, the leaders were F&C Asset Management (which attained the only perfect score), Hermes Fund Managers, Insight Investment, and Aviva Investors. The worst performers were INVESCO Perpetual, Credit Suisse Asset Management, and Artemis Investment Management. None of the worst performers actively participated in the survey; their scores are based on the information available on their public web sites.

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