Almost half or 49% of funds marked as ‘climate-focused’ do not use a climate index with 73% of these actively managed funds use a market capitalisation index instead, according to a new report by Pensions for Purpose.
The research polled 24 leading asset managers representing a total of €29trn in total assets, offering climate-focused funds to UK pension schemes
It
revealed that 92% active managers were not employing climate indices to benchmark their carbon metrics, despite their green labelling, with 19% not employing any benchmark at all.
Only 5% of active climate-focused funds were aligned against a climate transition benchmark while just 3% were against a Paris-aligned index.
On the passive front, 23% were against a climate transition benchmark while, 23% were measured versus a Paris-aligned benchmark.
In addition, 17% were against a low-carbon or positive-impact benchmark, and nearly a fifth deployed a market capitalisation index.
Climate benchmarks give managers specific objectives related to the greenhouse gas emissions in a fund’s portfolio. However, one of the issues is that there are a multitude on the market and this makes it difficult to compare funds.
The research identified 142 different climate carbon benchmarks across just 212 funds, with no commonality among them. This makes fund comparison challenging.
The research noted that asset managers were divided as to whether there will be a move towards consensus benchmarks or a shift towards more tailored benchmarks designed to meet pension funds’ specific climate goals.
“We were surprised by the number of climate-focused active funds which don’t benchmark themselves against a climate index,” said Karen Shackleton, chair and founder, of Pensions for Purpose.
She added, “The question this raises is whether active managers could set a higher bar when considering their carbon footprint, by benchmarking against a climate index rather than comparing themselves with the market capitalisation index which has much higher carbon metrics, even if they keep the market cap index as the performance benchmark.”
©Markets Media Europe 2022
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