M&G’s green ‘pivot’ is welcome but it could still do better – especially with voting

The asset manager is moving in the right direction but lags behinds UK leaders like L&G and Aviva in ShareActions rankings and needs to be more active in using its votes, writes James Moore

M&G is part of an alliance promising to terminate all coal investments by 2040 (AP)

If ever you needed proof that sustainability is now part of the mainstream you need only consider M&G’s touting of its “pivot” towards sustainability in its first full year results as an independent company. 

The latter meant there was always going to be a lot to talk about but CEO John Foley nonetheless wanted to make clear this was high on his agenda. 

“As responsible stewards of £367.2 bn in assets under management and administration (AUMA), we are … pivoting the entire company to sustainable investing – a shift which we believe will benefit customers, clients and shareholders, as well as wider society and the planet,” he declared. 

Recent weeks have seen £5bn of the company’s £136bn with-profits life issuance fund allocated towards “privately-owned enterprises working to create a more sustainable world”.

Just last week M&G also promised to terminate coal-powered investment in developed nations by 2030 and emerging markets by 2040 through having joined the “powering past coal” alliance. 

That, obviously, isn’t quick enough and those working in the field will tell you that coal is only part of the problem. The expansion of oil and gas is just as big of an issue but it is one fund managers seem much less keen to address. 

But small steps in the right direction are better than no steps. 

In making them, M&G is looking to the future not just of the planet but of its business. 

The company has seen billions of pounds flow out of its retail fund management operation, which offers better margins than managing money for institutions.

An improved performance from its funds would help stem the decline but aligning the business with what the consumer matters too. 

Foley made note of that in his comments to analysts: “We don’t see this shift to sustainable investing as a fad. We believe it is a permanent, structural change in customer behaviour, which is increasingly encouraged by governments and regulators.”

The problem with asset managers, of course, is that when it comes to the climate and other responsible investment issues there has often been a marked divergence between talk and action. 

This has been most obvious with the giant American firms. 

Larry Fink, BlackRock’s CEO, has previously made statements that look very similar to Foley’s. He has been vocal about putting the climate at the heart of the asset manager’s business. But while reports on the money manager’s performance have indicated improvement, BlackRock is still light years behind the top European managers, some of which can plausibly claim to have done that. 

M&G is not yet among them. Its record is so-so. The biannual rankings produced by ShareAction, which look across responsible investment themes, put M&G in ninth place out of 75 fund management group with a BBB. 

That is a very solid performance but it still puts the company behind UK leaders such as L&G (third with an A grade) and Aviva (fifth with an A grade). 

A more recent report, zeroing on voting behaviour over the last year, was much less favourable. M&G was one of ten big asset managers singled out for not using their voting rights on over 10 per cent of the resolutions filed, and it ranked no better than mid table. 

That’s a pity. M&G is an important investor and has a certain prestige. Its name is one that companies like having on their shareholder registers. Company boards are inclined to take note of when it uses its voting clout.

Actions speak louder than words and the company needs to do better on this front.

M&G’s shares were in high demand on the stock market after it hiked its dividend when there had been some speculation that a cut was looming. That made it stand out on a day when rival Aberdeen Standard slashed its payout by a third. Profits fell, but not by as much as had been feared so the City was kept very happy.

Those advocating for the planet weren’t without something to take home too, but Foley’s pivot needs to swing further for it to be seen as a natural home for progressive investors looking to tailor their portfolios to support a liveable planet earth for their children and grandchildren. 

Were it to become that, it might even help with those fund outflows.