Updated: Sep 29, 2022
Together, 30 of the biggest asset managers have at least $550 billion invested in oil, gas, and coal companies and are continuing to grow their exposures through financing the development of new fossil fuel generation assets. This continues to underscore the fact that talk is cheap in the investment industry. 23 of the top 30 asset management firms permit and actively invest in companies starting new coal projects and none provide any restrictions on holding the shares and bonds of companies actively involved in new oil and gas projects.
Stated decarbonising goals are ambitious in their targets but only limited to a very small portion of total assets under management, leading to a contradictory effect across the portfolio.
Case in point – the 25 largest asset managers with net-zero pledges also account for 97% of the holdings in coal generation capacity expansion. This lack of congruence across the application of environmentally sustainable principles relating to portfolio management and investment allocations creates a Goldilocks position for the largest asset managers. They continue to benefit from the financial returns of polluting industries and the higher fees of “green” investment products, such as ETFs, while focusing their PR spotlights on the corners of their portfolios where there may be some benefit. This perpetuates the insidious phenomenon of greenwashing – the misleading promotion of investment products as environmentally sustainable - and, despite the concept of ESG growing in popularity among investors, the actual execution of the strategy is proving to be more about risk management, rather than driving actual change.
This problem is compounded by the lack of exclusionary or divestment plans across passively managed funds, which represent 46% of AUM of the 30 largest asset managers. In fact, there was a positive correlation between passively managed funds and relative investing exposures to new coal, oil, and gas projects. Even where investors claim to have engagement processes to impact the sustainability practices of investee company management, those engagements are generally hollow and toothless, without the threat of divestment or other tangible governance interventions, such as seeking board seats or introducing voting measures at annual general meetings. The value of engagement is in the follow-up and large investment managers have, by and large, failed in gathering the incredible opportunity to create change through their capital.
Given the dearth of political will to implement effective decarbonisation agendas across the world and the inability to even honour the inadequate current pledges, we find ourselves sleepwalking into what the Network for Greening the Financial System calls a hot world future, where we simply fail to create any meaningful change, both on the regulatory and market action fronts. This is a disaster and one that all future generations will justifiably lay the blame for at our feet. I simply hope that we are around to bear the shame of it. We deserve no less.
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