Most Passive Funds Labeled ESG Are Financing Oil, Gas Expansion
'These investments are fueling climate change,' Paris-based climate nonprofit Reclaim Finance said.
(Bloomberg) -- More than two-thirds of passive funds marketed as sustainable are helping finance growth in the fossil-fuel industry, a trajectory that the International Energy Agency has said is incompatible with limiting global warming to the critical threshold of 1.5C.
Of 430 sustainable passive funds run by five major asset managers in Europe and the US, 70% “were exposed to companies developing new fossil fuel projects,” according to a fresh study published on Wednesday by Reclaim Finance.
“These investments are fueling climate change,” the Paris-based climate nonprofit said.
The study is based on raw data from market researcher Morningstar Inc. and covers a total of almost $2.7 trillion in assets. The analysis zeroed in on exposures to companies that are still expending capital on new fossil-fuel supply projects.
“Even asset managers which claim to have climate policies are part of the problem as most don’t apply their policies to passive funds,” Lara Cuvelier, sustainable investment campaigned at Reclaim Finance, said in a statement. “It is time for institutional investors and regulators to wake up and take action to stop these misleading claims.”
Some regulators are cracking down harder than others. Late last year, France said it will only let funds use a national environmental, social and governance label if they blacklist fossil-fuel companies that are still expanding productions. The label, known as SRI, has the potential to trigger about €7 billion ($7.6 billion) in divestments, Morningstar estimated in November.
The nonprofit also called on asset owners to put pressure in investment managers to live up to their net zero commitments.
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