Passive managers urged to do more to exclude ‘coal laggards’ – California News


Passive fundhouses are being encouraged to pressure index providers to exclude “coal lag” from mainstream indexes to help move to net zero.

Only 15% of index tracking and exchange-traded fund assets are included in index tracking products that integrate European environmental, social and governance standards.

This leaves more than € 1.9 trillion in assets in European funds that track non-ESG indexes, estimates based on Morningstar data.

Actively managed funds can meet ESG investment standards or adjust their strategies to integrate ESG data, while passive funds can change their tracking index to a version that integrates ESG standards and clients. There is a risk of losing.

This article was previously published Ignite Europe, Titles owned by FTGroup.

However, Paris-based non-governmental organization Reclaim Finance said asset managers should be willing to accept this risk to make passive funds more environmentally friendly.

Lara Cuvelier, who leads the investment campaign at Reclaim Finance, said the group needs to “work with other asset managers to identify coal lags and exclude them from key standard indexes.” I did.

Responding to concerns that changing passive funds in this way risks losing customers, Cuvelier said otherwise “exposing customers to stranded asset risk by not applying a precautionary approach to climate risk.” ..

Michael O’Riordan, founding partner of Blackwater Search & Advisory, said: [asset managers] We are taking ESG seriously, not just treating ESG as an opportunity to sell more products, but changing the entire investment process and fully integrating ESG. “

“Currently, they choose to use the excuse that” our clients still want exposure to the FTSE 100. ” […] The provider really wants to bring the cake and eat it, “said O’Riordan.

However, index experts have defended the maintenance of existing non-ESG indexes.

“It’s not the way to go,” said Jay Watson, head of quantitative analysis for The Index Standard, an index research group, because changing an existing index to ESG “damages investor confidence in the overall concept of the index.” Said.

“It may be good to choose to buy an electric car instead of a petrol engine car. But your garage is in your car’s annual service, without saying you aren’t. We are replacing the engine of your existing car with a battery and an electric motor, “Watson said.

Meggin Thwing Eastman of Europe, the Middle East and Africa, head of ESG research at MSCI, said: What is important is the clarity and transparency of disclosure and reporting so that investors can make informed choices. “

“The challenge of making investment more sustainable is not just market responsibility. Governments, regulators, investors, consumers, and non-market participants all have a role to play in changing the system as a whole. I’m responsible for it, “she added.

Index providers such as MSCI and S & P Global have committed to “adjusting all relevant services and products to achieve zero net greenhouse gas emissions by 2050” to achieve zero net emissions. We have launched an initiative aimed at supporting our goals.

However, the Net Zero Financial Service Providers Alliance does not promise that index providers will take action on existing indexes.

“Given that creating new funds and indexes wasn’t enough to reduce the flow to non-net zero alignment products, this initiative was totally inadequate,” said Cuvelier. ..

O’Riordan said it will take some time for a “natural transition” from mainstream indexes to ESG versions.

The Index Industry Association did not respond to requests for comment.

* Ignites Europe is a news service issued by FT specialists for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trial versions and subscriptions are available at the following URL:

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