It’s hard not to open a newspaper, turn on your TV or look at your newsfeed without reading about sustainability. Many industries talk about it but are they really doing anything about it?
A new report from Reclaim Finance shows that over the past seven years, since the signing of the Paris Agreement, many large asset managers have not taken appropriate steps to reduce fossil fuel expansion.
In fact, billions of dollars are still being invested into companies whose fossil fuel expansion plans make the achievement of fossil fuel reduction, impossible.
A year since the International Energy Agency told investors that achieving “net zero” means no new oil and gas supply projects, The Asset Managers Fueling Climate Chaos scorecard shows that asset managers will not be able to live up to their commitments. For example, the 30 major asset managers surveyed (25 are based in Europe and five are based in the U.S.), hold a combined US$82.5 billion in companies involved in coal expansion as of November 2021. BlackRock and Vanguard represent US$60 billion of that and both are members of the Net Zero Asset Manager Alliance (NZAMI).
In terms of oil and gas, the 30 managers have a combined US$468 billion in 12 major oil and gas companies as of March 2022. Twenty-three of the 30 managers do not restrict investments in companies launching new coal projects and none of the 30 managers restrict investments in companies involved in new oil and gas projects.
Even companies that say they are engaged have “failed to send clear signals to fossil fuel companies,” says the report. “Asset managers are actively maintaining the status quo by backing fossil fuel companies’ management despite inadequate climate strategies and plans to develop new fossil fuel projects.”
Passive managers are following the same pattern. The report shows that the nine biggest passive managers are among the biggest holders of companies developing new coal projects. “While these passive asset managers tend to put forward the growth of their ‘climate-friendly’ funds, they are still massively invested in fossil fuel expansion via their other funds, and especially the ones that they manage ‘passively,’ says the report. Some of these companies include, Amundi, BlackRock, Credit Suisse, DWS, Invesco, LGIM, State Street Global Advisors, UBS and Vanguard.
These nine asset managers account for 97% of the €17 trillion (nearly US$18 trillion) of ‘passive’ AUM in this report. But there is a loophole: none of them apply restrictions for coal companies to their entire ‘passive’ portfolio. For example, the biggest European asset manager, Amundi, has a coal policy for its active portfolio, but only applies this policy to less than 40% of its ‘passive’ assets. This means that more than 60% of these assets can be invested in coal, oil and gas without any restrictions.
Of the entire list of 30 managers, 25 are members of NZAMI. The report states that none of the asset managers pass the requirement to keep warming under 1.5°C. Some of those heavy hitter names include BNY Mellon, Deutsche Bank, Fidelity International and JP Morgan.
Some takeaways from the report say that asset managers must:
- Make fossil fuel expansion a redline in their investment and engagement policies and strategies,
- Establish time-bound demands for fossil fuel companies to stop developing new coal, oil and gas projects, phase down production and adopt short term absolute emission reduction targets; and
- Announce sanctions and exclusions for companies that choose not to respond to these demands.
- Establish a clear and credible engagement strategy directed towards the fossil fuel sector