Pensions consultancy XPS Group has downgraded several asset managers for lacking credible firm-wide climate targets or weakening earlier commitments, according to a recent report.
For its fifth annual investment fund ESG rating review, the consultancy analysed 170 funds run by 41 investment managers across eight asset classes. It considers that more than a quarter of funds failed to provide evidence of basic integration of environmental, social and/or governance (ESG) risks into their investment processes.
The consultancy assigned managers a traffic light rating of green, amber, or red based on five key criteria: philosophy (firm-level commitment), integration (how ESG is embedded in investment decisions), climate change (management of climate-related risks), stewardship (engagement and voting practices), and reporting.
According to XPS Group, 64% of funds rated green for philosophy this year, falling for the second year in a row from 72% in 2024 and 85% in 2023, signalling widening gaps between managers on their ESG commitments.
The proportion of funds rated green overall increased slightly to 43% in 2025, up from 40% in 2024, and XPS said the picture was “mixed” when looking at the underlying asset classes.
“This year’s results reveal a troubling pattern of stagnation,” said Alex Quant, head of ESG research at XPS.
“While some managers continue to advance their ESG capabilities, we’re seeing a clear bifurcation in the industry, with others retreating on climate commitments, and more than a quarter of funds are still unable to demonstrate evidence of basic integration of ESG risks into their investment processes.”
“[Pension] schemes should therefore engage proactively with their managers to ensure these risks are being properly assessed and integrated, or consider whether their investments remain fit for purpose,” Quant added.
NZAM exits
XPS Group’s report also highlights the recent wave of exits from voluntary climate initiatives and the temporary pause in operations at the Net Zero Asset Managers initiative (NZAM) earlier this year.
This did not remove the expectation for managers to set clear climate targets, and it would be monitoring the strength of manager targets set following NZAM’s revised commitment statement from last month, the consultancy added.
Those managers failing to demonstrate clear firm-wide climate targets, especially managers who “softened their previous targets”, were downgraded from green to amber.
“We expect managers to have clear firm-level targets to manage climate change as a systemic issue,” XPS Group stated.
It said it positions credible climate targets as a baseline requirement for strong ESG integration, adding that weakening commitments is a red flag that can directly impact ESG scores.
The consultancy’s research also showed that 90% of managers had a policy on diversity and inclusion for their business, only 61% had firm-level targets on diversity and inclusion.
The firm was unable to provide further information about its asset manager downgrades by the time of publication.
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