BlackRock, DWS and Legal & General Investment Management are including investments in fossil fuel developers in passive funds branded as sustainable, according to new analysis.
Reclaim Finance analysed 430 funds badged as sustainable at five of the biggest passive firms, which also included UBS Asset Management and Amundi.
It found 70% were exposed to companies that continue to expand their fossil fuel production, despite guidance from the International Energy Agency that net-zero targets won’t be hit if new oil and gas fields are developed.
Lara Cuvelier, sustainable investment campaigner at Reclaim Finance said: “While they are marketed as sustainable, these passive funds are invested in companies that are expanding fossil fuel production.”
READ Competition watchdog shells out £1.3m on greenwashing probes
The explosive growth in popularity of passive funds means they now have a growing impact on the climate, Reclaim Finance’s report said.
BlackRock, Amundi, UBS AM, DWS and LGIM held stakes worth $227bn in fossil fuel developers in 2023 and more than half of this was tied up in passive portfolios, the report said.
Of the 121 BlackRock sustainable passive funds analysed, 72% had exposure to fossil fuel expansion. This includes the $9.2bn BlackRock ACS World ESG Equity Tracker fund, which has positions in Shell, Chevron and ExxonMobil, according to the report.
Over half of DWS’ sustainable passive funds — 57% — were exposed to fossil fuel companies, though this was the lowest of the five firms examined.
Other mega funds in the analysis such as the $2.6bn Amundi S&P 500 ESG ETF and the $1.8bn L&G US ESG Exclusions Paris Aligned ETF are also exposed to fossil fuel developers including NextEra Energy and ExxonMobil, the report said.
LGIM declined to comment. UBS AM and DWS were approached for comment.
READ Former DWS COO gets €2m severance payout
A BlackRock spokesperson said: “As a fiduciary, we are focused on providing our clients with choice to meet their investment objectives. Our fund prospectuses and supporting material provide transparency as to the methodology and investment objectives of each fund. In addition our ETFs disclose holdings information, updated daily. For years, we have also published online the MSCI sustainability characteristics and business involvement metrics of our ETFs to help investors gain a more comprehensive view.”
“The fiduciary duty and regulatory obligation in passive management is to replicate as closely as possible an index — whether it is ESG or not — which is based on a methodology designed by an index provider,” an Amundi spokesperson said. “Therefore, the portfolio manager has to meet the contractual objectives to deliver a passive exposure in line with the index it replicates.”
“As a result, the portfolio manager may have to invest and/or stay invested in securities comprised in the index, even if an issuer has a negative impact on the environment or society. Should it be the case, for listed corporates, Amundi will vote, in line with its responsible investment policy, against the discharge of the board or management, the re-election of the chairman and certain directors.”
Reclaim Finance is urging regulators to introduce minimum standardised mandatory criteria for funds making sustainable claims and a ban on fossil fuel firms in passive funds marketed as sustainable.
To contact the author of this story with feedback or news, email Kristen McGachey
