The report says climate funds often fall short of Paris targets


ESG investment update

According to the analysis of the think tank InfluenceMap, funds marketed on a “climate theme” usually hold shares in large polluting companies, including large oil companies. Although they claim to be “consistent” with them, many funds are inconsistent with the goals of the Paris Agreement.

Of the 130 climate-focused funds under review, about 72 were found to have reached an agreement with Paris to limit global warming to well below 2C.

According to a report released on Friday, these 130 funds hold a total of US$153 million in fossil fuel production chain companies. State Street “No Fossil Fuel Reserve” Fund and BlackRock “Fossil Fuel Screening” Fund both hold shares in Marathon Petroleum and Phillips 66. Funds that track broader stock market benchmarks more closely will generally hold more shares in these companies’ portfolios.

“It is difficult for investors to accurately determine whether a branded fund [as climate-focused] Is it actually consistent with Paris,” said InfluenceMap analyst Daan Van Acker. He pointed to the broad terminology used to describe green funds and “Lack of transparency“About what this marketing means.

In recent years, financial products labeled as responsible, sustainable, and green have become popular, and asset management companies are under pressure to align their investment portfolios with the transition to net zero emissions.

But these products often criticized Have connections with polluting companies or companies accused of being socially or environmentally irresponsible.

Ben Caldecott of the Smith School of Business and Environment at Oxford University said retail investors will be surprised to see the carbon-intensive companies in the fund market in a green way.

But he added that the basis for evaluating a fund’s ecological certificate should exceed the number of brown stocks in its portfolio. He believes that asset owners can participate in promoting polluters to become more environmentally friendly, which may have a greater impact on promoting the transition to a low-carbon economy than simply investing in green stocks. Asset managers in the industry said that leaving such assets to investors who are not interested in environmental goals would be counterproductive.

Friday’s report measures a fund’s relationship with Paris by assessing the forward-looking production of portfolio companies (for example, how many internal combustion engine cars a car company plans to produce). The researchers then compare this information with a specific industry framework that limits temperature rise to below 2C, taking into account each company’s market share.

A negative score means that the portfolio has too much brown or too little green.

InfluenceMap found that the seven climate-focused funds provided by State Street Bank have an average misalignment of minus 14%. Eight UBS funds have a deviation of minus 8%, and eight BlackRock products have a deviation of minus 6%.

State Street Bank stated that in order to meet “different investor needs”, it provides “a series of ESG strategies, including funds that comply with the Paris Agreement and funds that meet climate goals in other ways.”

BlackRock said that the study does not include several of its green funds, including some that aim to align with Paris. It added that it provides customers with “a wide range of sustainable strategies to support them in achieving their investment goals.”

InfluenceMap stated that it only evaluated funds that have access to complete portfolio holding data.

UBS stated that the study did not capture the “positive impact based on index and tilt strategies,” which led the fund to “significantly reduce carbon intensity and carbon risk, but provide benchmark returns consistent with the parent index.”

According to the report, about one-third of the 130 funds have scores between minus 10% and minus 20%. Such funds—usually those that passively track market indexes but perform screening, such as excluding fossil fuel companies—“provide climate benefits from a portfolio perspective compared to the broader market,” it said.

Even funds advertised as “fossil fuel restricted” often hold shares in oil and gas value chain companies, such as refineries and distributors.

Some passive funds do not exclude polluting industries, but lower their weights relative to the index. According to the report, among the funds analyzed, the most common fossil-related holdings include oil companies Total, Chevron and Exxon Mobil, and oil services company Halliburton.

“When you talk about trillions of dollars [flowing into sustainable investing products] According to Sonja Gibbs, director of sustainable finance at the International Finance Institute, the scale of the currency cannot be much better than the broader market in terms of ESG performance.

The report’s evaluation of another 593 extensive ESG funds found that 71% of funds did not match Paris, with scores as low as minus 100%. Several such funds hold the top 10 mining companies Rio Tinto and BHP Billiton, while Franklin Templeton’s “Sustainable Equity Fund” holds the oil company Woodside Petroleum.

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