It identifies 25 members of the Net Zero Asset Managers’ initiative (NZAM) that could be misleading clients and putting their investments at risk by holding equity in 15 of the world’s largest listed oil and gas companies, including ExxonMobil, Chevron and TotalEnergies.
Giant US asset managers BlackRock, Capital Group and Fidelity, which offer funds to investors worldwide, as well as France’s Amundi have “doubled down on oil and gas” in 2022 and significantly increased their overall shareholdings in the 15 companies.
Shares in the 15 companies now account for 6.1% of Amundi’s total investments. In the US they make up 2.3% of assets under management at State Street, 2.0% at Capital Group, 1.7% at Northern Trust and 1.3% at Blackrock. They account for 1.3% of AUM at UBS (Switzerland) and 1.2% at abrdn (UK).
The report warns that asset managers also risk misleading investors about funds that have sizeable positions in oil and gas companies, given regulatory interest in greenwashing. More than 160 funds marketed with the labels “ESG”, “sustainable”, “climate”, “carbon” and “transition” hold $4.6 billion of investments in the 15 companies.
For example, BlackRock’s ACS 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”, but it has $219 million in 10 of the 15 oil and gas companies. Shares in the 15 companies make up 35% of the investments in another BlackRock “ESG” fund: iShares V Plc – MSCI World Energy Sector ESG UCITS ETF.
Maeve O’Connor, Associate Analyst, Oil, Gas and Mining and report author, 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 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.”
Asset owners such as pension funds, insurers, sovereign wealth funds and foundations, are increasingly concerned that their investments should not fuel climate change and are also aware of the risks of investing in high-carbon companies during the energy transition. Members of the UN Net Zero Asset Owners Alliance, with investments worth $11 trillion, commit to decarbonising their portfolios so they achieve net zero by 2050 “consistent with” the 1.5°C goal.
Asset managers have responded by providing “green” investment products and joining high-profile climate initiatives. More than 300 asset managers with $59 trillion of assets under management have signed up to NZAM, committing to align all their investments with net zero emissions by 2050.
However, the report Missed Pitch reveals that 25 NZAM members are among the biggest shareholders of the 15 major oil and gas companies, even though previous Carbon Tracker research has revealed that none of those companies are aligned with the Paris climate target.2
To have any chance of meeting the 1.5°C goal global CO2 demand for both oil and gas needs to fall by 75% by 2050, according to the International Energy Agency. However, most of the 15 companies are intending to increase production rather than planning for production declines, and all have a significant portfolio of potential production assets which are unlikely to be financially viable in a low-carbon future.
Mike Coffin, Head of Oil, Gas and Mining and report co-author, said: “The energy transition from fossil fuels to clean technologies is well underway and is likely to gather pace as the damaging impacts of climate change drive bolder government policies. Growing numbers of investors want to support this transition, and are seeking to align their portfolios with 1.5°C. However, it’s hard to see how they can do this with credibility if they own financial interests in oil and gas companies that are not themselves aligned with the Paris target.”
NZAM members that invest in oil and gas may be going against the wishes of many asset owners and putting their customers’ investments at risk. Oil and gas investments may not deliver expected revenues if companies do not plan to cut production in line with falling demand. Solar and wind power and electric vehicles are already eroding demand for oil and gas and concerns about energy security have boosted their uptake following Russia’s invasion of Ukraine.
The report warns asset managers that if they fail to live up to their climate commitments customers may vote with their feet and they could also face scrutiny from regulators. A recent study of institutional investors by pwc found that 39% have rejected or stopped investing with an asset manager because of ‘shortcomings’ in their ESG investment strategies, and 50% would consider changing their asset manager for this reason.
Regulators in the US, EU and UK have begun to investigate managers whose investments do not reflect their publicised climate policies. BNY Mellon and Goldman Sachs have both been fined by the US Securities and Exchange Commission (SEC) for failing to adequately adhere to their own ESG policies in their investment decision making.
Although some asset managers argue that holding shares in oil and gas companies enables them to play an active role influencing their climate behaviour the report finds that NZAM members do not vote in favour of resolutions relating to the energy transition much more often than non-members. Regulators are taking note and the SEC is investigating “sustainable” funds which vote against ESG focused shareholder proposals.
The report also questions whether asset managers can credibly meet NZAM commitments if, like BlackRock and Amundi, they predominantly offer passive funds tracking indexes like the S&P500 and FTSE100 which are not themselves aligned with 1.5°C.
It says passive products based on conventional indices cannot be considered 1.5°C aligned if they purchase shares in unaligned oil and gas companies. In fact, they leave investors exposed to greater risk because funds are unable to sell shares if a company is underperforming.
Carbon Tracker identified the top 20 shareholders in each of the 15 major oil and gas companies. They included 90 asset managers of which 25 were members of NZAM. It then analysed the position of each asset manager across each company.
Top 35 Asset Managers by Value of Aggregated Oil & Gas Positions at end 2022
The report can be downloaded here
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