71 percent of ESG investment funds do not meet the global climate targets set out in the Paris Agreement. Moreover, many explicitly named “climate” funds still appear to invest in fossil fuels. Of the large providers, State Street, UBS and BlackRock in particular achieve poor scores, according to the researchers.
This is evident from InfluenceMap’s research among 723 equity funds marketed specifically with ESG or climate-related keywords. According to the independent London-based climate think tank, the result proves that supervision of the sector must be stricter.
The lobby group makes a distinction between 593 ESG funds and 130 climate funds. Together, these funds, with key words in their titles such as “low carbon”, “fossil fuel free” or “green energy”, have invested assets of USD 330 billion.
State Street, UBS, BlackRock
71 per cent of ESG funds and 55 per cent of climate funds have not aligned their investment objectives with the global climate targets set out in the Paris Agreement, according to InfluenceMap calculations.
Of the asset managers with the largest amount of assets under management, State Street, UBS and BlackRock in particular have many funds in their portfolio that are less green than their labels suggest, if the Paris agreement is taken as a starting point.
Several climate funds even still invest in companies from the fossil fuel production value chain, totalling USD 153 million. These include investments in ExxonMobil, Chevron and TotalEnergies.
Some of the funds classified as “limited use fossil fuels” have shares in oil refineries and distributors, such as Marathon Petroleum Corporation and Phillips 66. “These two companies actively work against climate policy”, according to InfluenceMap. This is the case with the SPDR S&P 500 Fossil Fuel Reserves Free ETF and the iShares Developed World Fossil Fuel Screened Index Fund (BlackRock), among others.
Branding
In a reaction, analyst Daan Van Acker of InfluenceMap pointed out the considerable variation in climate performance between the funds surveyed, which moreover is not necessarily explained by their individual branding. Therefore, although climate funds generally score better than ESG funds, a climate fund is not significantly more likely to be climate-focused than an ESG fund.
According to Van Acker, the increased concerns among investors and regulators about greenwashing and (a lack of) transparency regarding ESG and climate funds thus seem justified. “The lack of consistency and clarity makes it difficult for investors to determine what the descriptions of these funds mean in practice.”
In general, InfluenceMap emphasised in its findings that they need not contradict the strategy and objectives of the individual funds analysed. However, the think tank states that the issue “is likely to be of great interest to investors in such funds, who should expect their portfolios of climate themes to at least outperform the market when compared to climate criteria that are standard in the industry.”
PACTA
For this study, the funds analysed were assessed using the Paris Agreement Capital Transition Assessment (PACTA), a widely used tool that measures the exposure of investment portfolios to companies in the fossil fuel, energy and automotive sectors. Based on the production plans of these companies, PACTA measures to what extent an investment portfolio is in line with the objectives of the Paris agreement.
Of the asset managers surveyed, BlackRock has the largest number of climate funds, with assets under management in the category of USD 26.3 billion. However, the average PACTA score for these funds is -6 per cent. In comparison, a score of 0 per cent means that a fund is “Paris Aligned” A negative score means an overweight position in companies whose production plans deviate negatively from climate scenarios in the coal, oil and gas, power and automotive sectors.
BlackRock reaction
BlackRock states in a reaction to the InfluenceMap research on Friday morning that it shows gaps in the assessment of BlackRock’s sustainable fund offering. “For example, with the new regulations and data for climate benchmarks, BlackRock has partnered with index providers to market Paris-Aligned indices. BlackRock’s Paris-aligned climate ETFs are not included in the InfluenceMap study,” said a spokesperson.
On the funds studied, he stressed that their prospectuses are clear about their investment objectives and methodology. “Investors have full transparency into the holdings of our ETFs, which are updated daily, and we have made the MSCI sustainability characteristics of our ETFs publicly available online for over two years.”
He further added that BlackRock offers clients a broad spectrum of sustainable strategies to help them achieve their investment goals, reduce exposure to fossil fuels or minimise carbon emissions to meet climate targets.
DWS
The Wall Street Journal yesterday reported the unconfirmed news that the US securities regulator SEC has launched an investigation into false claims by German asset manager DWS that it invests a significant proportion of its assets under management in accordance with ESG integration principles.
DWS has refuted the allegations, made by a former employee, in a press release on Thursday.