‘Sustainable’ pension funds investing in fossil fuels

Written by Lori Campbell on 16th May 2023

Brits investing their pensions in funds that claim to be “green” may unwittingly be backing the world’s largest oil and gas companies, a new report reveals.

Research by Carbon Tracker Initiative found that asset managers of well-known pension funds have a staggering $376 billion (£295 billion) invested in oil and gas companies that are fuelling climate change. This is despite them publicly backing efforts to limit global temperature rises to 1.5C – the threshold set out in the Paris Agreement for avoiding the most devastating effects of climate change.

The financial think tank found that more than 160 funds with a “green” label held a combined $4.6 billion (£2.7 billion) in 15 fossil fuel companies including ExxonMobil, Chevron and TotalEnergies.

It also found that 25 members of the Net Zero Asset Managers (NZAM) initiative had invested in fossil fuel companies and some had even increased their holdings last year. NZAM is an international group of asset managers “committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5C.”

Giant US asset managers BlackRock, Capital Group as well as France’s Amundi – all NZAM signatories – have “doubled down on oil and gas” in 2022, the report said, and significantly increased their overall shareholdings in the 15 companies.

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Tony Burdon, CEO at pensions campaign group Make My Money Matter, told Good With Money: “This research shows how billions of pounds of UK pension savers’ investments is supporting companies at the forefront of fossil fuel expansion. Companies who should be transitioning to renewable energy sources, but who instead are doubling down on oil and gas. This is not just bad for the planet, it puts our pensions at risk too.

“It’s time for asset managers – and the pension funds whose investments they look after – to get serious on engagement. This means at AGM season voting against Directors, voting against transition plans, and voting for climate resolutions. Saying no to the expansion of coal, oil and gas.  It’s what savers whose money they are investing expect, and what the planet desperately needs.”

Misleading pension savers

The report warns that asset managers risk misleading investors about funds that have sizeable investments in oil and gas companies. It says more than 160 funds marketed with the labels “ESG” (environment, social and governance), “sustainable”, “climate”, “carbon” and “transition” hold $4.6 billion (£3.7 billion) of investments in the 15 companies.

NZAM said its international initiative started two years ago and investors needed time to change their strategies.

The findings come as the UK’s Financial Conduct Authority prepares to bring in new anti-greenwashing rules intended to clean up the labelling of investment funds.

A rising desire among consumers to invest their money sustainably has led to a ballooning of funds labelled as sustainable, climate, carbon, transition or ESG. But despite these labels, they can be anything but green.

Maeve O’Connor, one of the report’s authors and an analyst at the Carbon Tracker Initiative, said: “What we found is that these funds, despite their names, can often include sometimes large positions in fossil fuel companies. For retail investors that could be seen to be misleading. If I’m investing in a green fund, do I want my investment to be going to ExxonMobil? Probably not.”

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Performance targets at odds with climate targets

According to the new report, BlackRock’s ACS Climate Transition World Equity Fund says it invests in companies “well-positioned to maximise the opportunities and minimise the potential risks associated with a transition to a low-carbon economy.” However, it has $219 million (£175 million) invested in 10 of the 15 leading oil and gas companies.

O’Connor said asset managers were usually given performance targets over short periods, which might influence their thinking. She said: “They could be assessed over two to five years and that timescale doesn’t really fit with the realities of the energy transition.”

A spokesperson for NZAM said that while its partners “share Carbon Tracker’s perspective that the oil and gas industry must very rapidly decarbonise to meet the urgency of the climate crisis, the Net Zero Asset Managers’ commitment statement does not require signatories to choose equity holdings to meet a particular climate target”.

It added: “Passive investors [those that track markets] cannot divest from the oil and gas sector without significantly changing their investment strategy.”

NZAM said it expected funds that have passive portfolios to engage in dialogue with companies, proxy voting and policy advocacy to align their holdings with the 1.5C Paris commitment.

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