Major investment funds available to UK consumers are marketing themselves as “sustainable” and “ethical” while financing fossil fuel companies, research has found.
Numerous asset managers are using “green” terms in their branding despite investing in oil giants, with the worst performer being a fund managed by BlackRock, a report by the Ethical Consumer magazine shows.
The news comes amid growing scrutiny of “greenwashing” in the investment world, with the Financial Conduct Authority currently consulting on new rules to tackle the issue and HSBC recently having a series of adverts banned for misleading customers about the bank’s environmental efforts.
Edward Lander, the report’s lead author, said: “We are in an absurd situation in which asset managers can label funds as “sustainable” while still investing in the world’s largest fossil fuel companies. The lack of regulation makes for a Wild West of sustainable fund management”.
Ten percent of the 108 funds examined had holdings in fossil fuel companies and a further 14 percent did not disclose all their holdings, preventing consumers from knowing whether their investments were financing oil, gas, or coal developments.
Many of the funds analysed also had no clear policy for excluding fossil fuels from their portfolios or a commitment to actively invest in climate solutions, such as renewable energy.
‘Fuelling the fire’
The research used investment websites Morning Star and Trustnet to identify funds with environmentally friendly terms in their branding, such as “sustainable”, “climate”, and “ethical”. Funds with over £500 million worth of assets under management were included, as well as 14 specifically climate focused funds previously investigated by Ethical Consumer.
Each fund was then cross-referenced with the Carbon Underground 200, a list of the largest fossil fuel companies in the world, Macroclimate 30, a list of the 30 largest coal-fired power plant owners in developed economies, China, and India, and a list of leading oil industry service providers.
The fund with the most fossil fuel-linked holdings in its portfolio was iShares Dow Jones Global Sustainability Screened. The fund, managed by BlackRock, the world’s biggest investment company, says it is composed of “leaders in the sustainability field”. Despite this, it owns stakes in 17 companies on the Carbon Underground 200, including Royal Dutch Shell, TotalEnergies and ConocoPhillips.
BlackRock has pledged to support the green transition following years of criticism over its financing of fossil fuels but still appears to back the oil and gas industry behind closed doors.
Ethical Consumer collected data from publicly available sources and the companies themselves, starting in July. Funds were ranked from zero to five, with criteria including whether the fund’s literature contains “a clear commitment to exclude companies providing essential services/infrastructure for the fossil fuel industry”.
Exchange Traded Funds (ETFs) – those traded on a stock exchange – were the worst-performing investment category in the research, with 30 percent of the ETFs analysed investing in companies on the three lists Ethical Consumer used.
David Hayman, campaign director at Make My Money Matter, a campaign set up by film director Richard Curtis to stop banks and pension funds financing fossil fuel expansion, said: “We know that savers and citizens want to make their money matter. They want their pensions and their investments tackling the climate crisis, not fuelling the fire. But this report shows the massive gap between sustainable branding and serious impact, and highlights the nightmare consumers face navigating sustainable labelling.”
“Sustainability isn’t a sales tactic and you can’t claim to be a climate leader while having so called green funds invested in the world’s worst polluters.”
Engage or divest
There are currently over four hundred funds available to British consumers claiming to be sustainable or ethical, according to Ethical Consumer.
But the absence of an agreed definition for such investments combined with a lack of regulatory scrutiny means investors could be bankrolling planet-warming fossil fuels without knowing.
The research raises questions around whether sustainable funds should “divest” from fossil fuel companies or adopt an “engagement” strategy where they continue to invest in highly polluting companies and industries with the aim of pushing them in a greener direction.
Oscar Warwick Thompson, head of policy and communications at the UK Sustainable Finance and Investment Association, told DeSmog there needed to be strong oversight of investment funds to avoid the public being misled.
“If a sustainable fund is invested in perhaps a small amount of oil and gas companies, but is looking to use mechanisms by which they can move towards a greener path or a more sustainable footing in the years ahead, then perhaps there is a case for that to be put in a sustainable fund.
“But there need to be a lot of protections in place to make sure that we’re not misleading the consumer – that’s the key thing.”
The research also found that 15 percent of the pension funds analysed were invested in companies on either the Carbon Underground, Macroclimate 30 or top ten infrastructure list, with a further 21 percent failing to disclose sufficient information for researchers to determine the makeup of their portfolios.
New regulation
Policymakers are increasingly seeking to regulate what can and cannot be deemed sustainable. The European Union brought in an important new framework for the finance sector last year but drew criticism for categorising gas and nuclear as green.
The UK does not currently have regulations in place to determine what qualifies as a sustainable fund, but the Financial Conduct Authority (FCA) is currently consulting on how to tackle “exaggerated, misleading or unsubstantiated claims” that “damage confidence” in the products.
Last month, Sacha Sadan, the FCA’s Director of Environment Social and Governance, said: “Greenwashing misleads consumers and erodes trust in all ESG [environmental, social and governance] products. Consumers must be confident when products claim to be sustainable that they actually are.”
A BlackRock spokesperson said its fund met its own screening criteria, excluding investments in sectors such as alcohol, gambling, and arms. Excluding fossil fuels is “not part of the fund’s investment objectives” and the company offers fossil-free funds “for clients that wish to invest in that way”, they said.
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