Ahead of the UK Financial Conduct Authority’s announcement of anti-greenwashing rules, a think tank has accused pension funds of marketing themselves as “green” over holding over $4.6bn in oil and gas companies.
Environmental think tank Carbon Tracker Initiative found that more than 160 “sustainable” funds were held in companies, including Chevron, ExxonMobil and TotalEnergies. Despite publicly pledging to limit global temperature rise to 1.5C, 25 members of the Net Zero Asset Managers (NZAM) initiative invested $376bn in fossil fuels. In its defence, an NZAM statement said the initiative only started two years ago and investors needed time to change their strategies, reports the Guardian.
More than 300 asset managers holding assets worth $59tn signed up to NZAM, committing to align their investments with net zero emissions by 2050. However, 25 of these members are among the biggest shareholders of 15 major oil and gas companies.
Since 2012, UK employers became legally obliged to enrol workers in workplace pension schemes. Now, close to 50% of all UK employees can choose how their money is invested. As the investment trend shifted towards sustainability, the financial industry responded by categorising funds using terms, including sustainable, climate, carbon, ESG or transition. Despite the categories, these funds can “often include sometimes large positions in fossil fuel companies”, said Maeve O’Connor, the report’s co-author and an analyst at the Carbon Tracker Initiative.
For instance, asset management firm BlackRock’s Climate Transition World Equity Fund claims to invest in companies “well-positioned to maximise the opportunities and minimise the potential risks associated with a transition to a low-carbon economy.” However, BlackRock itself holds $219m in ten oil and gas companies.
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O’Connor said: “Asset managers that join coalitions such as the Net Zero Asset Managers Initiative are signalling to the market that they will invest in line with the Paris target of holding global warming to 1.5°C. If they invest in oil and gas companies that are not aligned with this target, they risk their reputation among climate-conscious asset owners while other investors may increasingly be concerned over exposure to energy transition risk.”
Regulators in the UK, EU and the US are already investigating managers whose investments do not align with their climate policies. While asset managers argue that holdings in oil and gas companies enable them to influence climate behaviour, NZAM members do not vote in favour of resolutions relating to the energy transition. In November 2022, Goldman Sachs and BNY Mellon became the first to be fined by US Securities and Exchange Commission for non-adherence to ESG policies while investing.