Without coal exclusions climate commitments are just ‘hot air’

Reclaim Finance report finds less than half of asset managers have a public coal limitation policy

Less than half of major asset managers have a public coal limitation policy in place, despite many making climate commitments, such as net-zero pledges.

This is a finding from a Reclaim Finance report, which has led the environmental non-profit to call many commitments nothing more than “hot air”.

The Slow Burn: the Asset Managers Betting Against the Planet report compared 29 asset managers, representing €34trn, on their approaches to coal. It found just 13 out of 29 asset managers have a global coal policy or coal exclusion criteria. Those that don’t include Vanguard, Schroders and Pimco.

This is despite 13 surveyed signing up the Net Zero Asset Managers’ Initiative. The report said although €23trn assets under management are covered by long-term climate commitments, such as net-zero pledges required by certain initiatives, only €3.4trn exclude companies with coal expansion plans. This is six that are excluding companies with coal development plans and eight that apply their exclusions by default to their investments via mandates.

Lara Cuvelier, sustainable investment campaigner at Reclaim Finance, said: “Asset managers have rained down net-zero commitments in recent months, but this report exposes these as little more than hot air. Simply put, genuine climate action is incompatible with coal investments. Hiding behind a lack of data and self-imposed technical problems just won’t cut it, especially as coal is not only one of the most polluting fossil fuels but also the easiest to get rid of.”

Source: Reclaim Finance

Passive problem

The report expressed particular concern about coal policies in passive funds. It said although the share of assets managed passively has doubled in Europe over the past 10 years, just 3% of the passive portfolios of the biggest managers are covered by a criterion to restrict investments in coal.

“Among them, DWS, LGIM and Amundi are the only asset managers applying coal criteria to all their products labeled as sustainable,” the report said, adding that a commitment to restrict coal investments in these funds should be “standard”.

Moira Birss from Stop the Money Pipeline, added: “Asset managers want us to think their funds are passive, when in fact they’re actively choosing to be passive in the creation and management of index funds. And they want us to be distracted by their creation of more ‘ESG’ funds, when many of those funds are still chock-full of climate-damaging companies. If asset managers want their climate commitments to mean anything, they must actively decarbonize their entire portfolios.”

As long as passive investments use broad market indexes as benchmarks, the report said, investments will continue to flow to climate laggards. “The challenge in the coming years will be for investors to progressively take into account long-term considerations and change the benchmarks they refer to (both internally and externally to evaluate their fund managers),” it said.

Positive steps

The report did highlight some examples of good practice, however, as well as setting out several recommendations.

It noted Ostrum, AXA and LGIM’s coal policies as good for encompassing most if not all their respective funds and mandates. For active managers, Reclaim Finance suggests immediately divesting all assets under management by default from companies developing coal projects.

For passive managers, the non-profit suggests not launching new products without coal exclusion criteria, offering climate-friendly funds as the default option, and identifying fossil fuel developers in existing funds.

 More generally it recommends aligning all investment activity with a pathway to limiting average global temperature increases to 1.5 degrees Celsius and also bringing all stewardship activity in line with this.

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Natasha Turner

Natasha is global deputy editor at ESG Clarity, part of the Bonhill Group, and has been a financial journalist for six years. She has been shortlisted for Story of the Year and Investment Journalist of...