Wednesday 20 March 2024 – Asset managers are greenwashing passive funds, according to new analysis published today [1]. With the number of passively-managed investments growing, Reclaim Finance examined 430 “sustainable” passive funds managed by five of the biggest asset managers in Europe and the United States and found that 70% were exposed to companies developing new fossil fuel projects. Reclaim Finance is warning that these investments are fueling climate change and is urging regulators to outlaw sustainable claims for funds supporting fossil fuel expansion.
The new analysis finds that five of the biggest passive fund managers, Amundi, BlackRock, DWS, Legal & General Investment Management (LGIM) and UBS AM are turning a blind eye to the climate impact of their passive investments, with funds invested in oil giants including TotalEnergies, Shell and ExxonMobil, and coal developers such as Glencore and Adani. In total 70% of the 430 passive funds with “sustainability” claims analyzed [2] were exposed to fossil fuel companies who continue to expand their fossil fuel production, locking in climate-wrecking emissions for generations to come.
For example, the BlackRock ACS World ESG Equity Tracker Fund holds US$499 million in fossil fuel developers, including ExxonMobil, Shell and Chevron. ExxonMobil is the world’s 7th biggest oil and gas developer, seeking to expand its production and resulting carbon emissions [3]. Analysis of its strategy shows that by 2030, business as usual will mean that it will overshoot a net-zero emissions pathway by 39%. [DWS’ Xtrackers MSCI AC World ESG Screened ETF holds US$114 million in fossil fuel developers, including investments in Shell, ExxonMobil and TotalEnergies [4]. TotalEnergies’ expansion plans include exploitation of Papua LNG, which would add at least 220 million tons of CO2 emissions, the equivalent of the total annual emissions of Bangladesh.
With an increasing volume of assets now managed via passive funds [5], the findings raise questions about the climate impact of these investments which are supporting the development of a new generation of fossil fuel production resulting in future carbon dioxide and methane emissions. The International Energy Agency’s net-zero emissions scenario indicates that there is no room for new oil and gas fields if global temperature rise is to be limited to 1.5°C. The report queries how assets managers intend to manage their decarbonization, given that most do not apply their climate policies to passive products.
Asset managers are fueling the climate crisis with their so called “sustainable” passive funds! While they are marketed as sustainable, these passive funds are invested in companies that are expanding fossil fuel production. Even asset managers which claim to have climate policies are part of the problem as most don’t apply their policies to passive funds. It is time for institutional investors and regulators to wake up and take action to stop these misleading claims.
Lara Cuvelier, Sustainable Investment Campaigner at Reclaim Finance
The analysis highlights how asset managers are relying on “sustainable” indexes to identify investments for passive funds, but these indexes do not exclude fossil fuel developers [6]. Analysis of the index methodologies used for 25 of the ‘sustainable’ funds found that they contain “significant flaws” and are not based on scientific criteria when it comes to greenhouse gas emissions. While some asset managers have policies which commit to restricting new investments in fossil fuels (most often for coal), few apply these policies to their passive investments and therefore also make misleading ‘sustainability’ claims.
Reclaim Finance is urging regulators to act on the misleading use of sustainable claims for funds by introducing minimum standardized mandatory criteria. Fossil fuel developers should not be allowed in passive funds marketed as ESG or as “sustainable”. And they call on European regulators to introduce new measures to ensure that asset managers’ climate commitments apply to all their funds, including those managed passively.
