Twenty five members of the Net Zero Asset Managers’ Initiative (NZAMI) are potentially misleading clients, according to a green think tank —by having more than $365bn (£295bn) invested in 15 of the world’ largest oil and gas companies.
Carbon Tracker says these companies are not aligned wit the Paris climate target. It says that this figure includes investments into ExxonMobil, Chevron and TotalEnergies – companies that have been criticised for their track record on carbon emissions.
The report also found that more than 160 “green” funds hold around $4.6bn of investments in these large oil and gas producers All of these funds use labels like “sustainable”, “climate”, “carbon transition” or “ESG” to promote the fund.
The Carbon Tracker report cites the example of BlackRock’s ACS Climate Transition Work Equity Fund, which claims to invest in companies “well-positioned to maximise the opportunities and minimise the potential risks associated with a transition to a low-carbon economy”. However it still has $219 million in 10 of the 15 largest oil and gas companies.
The research also claimed that fund managers like BlackRock, Amundi and Capital Group have all“doubled down on oil and gas” in 2022 by significantly increasing their overall shareholdings in these 15 companies.
It said that shares in these 15 companies now make up 2.3 per cent of assets under management at State Street, 2.0 per cent at Capital Group, 1.7 per cent at Northern Trust, 1.3 per cent at Blackrock, 1.3 per cent at UBS, and 1.2 per cent at abrdn.
Last year Vanguard quit the NZAMI but most major asset managers are signed up to its principles of supporting the Paris climate goals.
The report’s author Maeve O’Connor says: “Asset managers that join coalitions such as the Net Zero Asset Managers Initiative are signalling to the market that they will invest in line with the Paris target of holding global warming to 1.5°C. If they invest in oil and gas companies that are that are not aligned with this target, they risk their reputation among climate-conscious asset owners while other investors may increasingly be concerned over exposure to energy transition risk.”
The report adds that asset owners such as pension funds, insurers, sovereign wealth funds and foundations, are increasingly concerned that their investments should not fuel climate change and are also aware of the risks of investing in high-carbon companies during the energy transition.
It warns asset managers that if they fail to live up to their climate commitments customers may vote with their feet and they could also face scrutiny from regulators. A recent study of institutional investors by PWC found that 39 per cent have rejected or stopped investing with an asset manager because of ‘shortcomings’ in their ESG investment strategies, and 50 per cent would consider changing their asset manager for this reason.
Although some asset managers argue that holding shares in oil and gas companies enables them to play an active role influencing their climate behaviour the report finds that NZAMI members do not vote in favour of resolutions relating to the energy transition much more often than non-members. Regulators are taking note and the SEC is investigating “sustainable” funds which vote against ESG focused shareholder proposals.
The report also questions whether asset managers can credibly meet NZAMI commitments if, like BlackRock and Amundi, they predominantly offer passive funds tracking indexes like the S&P500 and FTSE100 which are not themselves aligned with 1.5°C.