BlackRock, State Street and Capital Group are among the largest investors in the oil and gas sector, despite being members of the Net Zero Asset Managers (NZAM) initiative publicly backing efforts to limit global warming to 1.5°C.
The top 35 asset managers by value of aggregated oil and gas positions at end 2022 in total have $417bn invested in the sector that is fuelling climate change, according to a report from the financial think tank Carbon Tracker.
The report, Missed Pitch, identifies 25 members of the NZAM initiative 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 oil and gas 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).
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, the report said. 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.
In a statement, NZAM said: “While the Net Zero Asset Managers partner networks share Carbon Tracker’s perspective that the oil and gas industry must very rapidly decarbonize 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.”
The Carbon Tracker report warned 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 $4.6bn of investments in the 15 oil and gas companies.
BlackRock’s ACS Climate Transition World Equity fund, for example, claims to invest in companies “well-positioned to maximize the opportunities and minimize the potential risks associated with a transition to a low-carbon economy”. But it has $219m 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 for oil, gas and mining at Carbon Tracker, and the report’s 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 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.”
NZAM said: “Passive investors cannot divest from the oil and gas sector without significantly changing their investment strategy. NZAM expects that signatories with passive portfolios will use engagement strategies including dialogues with companies, proxy voting and policy advocacy to align their holdings with the scientific community’s consensus that global warming must be limited to 1.5°C over pre-industrial levels to avoid catastrophic consequences.”
More than 300 asset managers with $59trn of assets under management have signed up to NZAM, committing to align all their investments with net-zero emissions by 2050.
Regulators in the US, EU and UK have begun to investigate managers whose investments do not reflect their publicized 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 behavior, the report finds that NZAM members do not vote in favor of resolutions relating to the energy transition much more often than non-members.
Regulators are taking note and the SEC is investigating “sustainable” funds that vote against ESG-focused shareholder proposals.
Last year, Vanguard was a notable exit of NZAM, leaving some to question the effectiveness of such industry initiatives. Indeed, ESG Clarity’s Net Zero Database has found many asset managers who had made net-zero commitments did so in ways that might not have much real-world impact.