ESG and climate funds have risen from a niche topic to the hottest asset class in just a few years. The total value of these funds is already $ 1.7 trillion. Those who want to invest in an ecologically correct fund with a clear conscience must, however, ask themselves whether they really only invest their money in companies that do not invest in “dirty” industries with high CO2 emissions. This is difficult to determine for a layperson. With the strong growth, the regulator’s concern about the quality, consistency and transparency of the products available also increases.
The British think tank InfluenceMap has therefore examined 723 equity funds that are advertised as ESG and climate funds. Your fund volume is already 330 billion dollars. They checked whether they would base their selection of securities on the Paris climate targets, to which 195 countries have committed themselves and which have set themselves the goal of reducing global warming to below two degrees Celsius. During the funds’ climate compatibility check, particular attention was paid to the question of whether they had stocks in their portfolio that ran counter to this intention.
Eight “dirty” sectors
The analysis was carried out using the Paris Agreement Capital Transition Assessment (PACTA) method. This was developed by the non-profit think tank “2-Degrees-Investing Initiative” to examine the climate impact assessment of investment portfolios. The analysts at InfluenceMap used this data to determine whether and how many fund shares in climate-relevant sectors – they represent 70 to 90 percent of the CO2 emissions financed by capital markets – are included in the funds. The “dirty” industries include oil and gas exploration, coal mining, transportation (automotive, aviation, shipping) and industry (steel, cement). They are particularly relevant for achieving the climate goals. Corporations that emit on average more greenhouse gases than the Paris Agreement allows in order to achieve the climate targets.
The result of the study by the British think tank: Of the 723 broad ESG funds examined, 421 or 71 percent do not agree with the climate targets and have stocks in particularly climate-damaging companies from the eight sectors mentioned. For example, you hold shares in oil companies such as Total, Halliburton, Chevron, and Exxon Mobil.
Climate funds invest in a way that is harmful to the climate
The eco-check is not all that much better with climate funds either. Of 130 climate funds, 72 (55 percent) received a negative rating. According to the PACTA method, the funds turned out to be incompatible with the climate targets. The funds examined, for example, with the climate fund marketing label, invest 153 million dollars in their portfolios in shares of companies in the fossil fuel value chain. Such holdings may be of concern to investors, particularly following the IEA’s Net Zero by 2050 report, which recommends an immediate halt to all new fossil fuel explorations.
According to the authors of the study, however, the problem begins with the climate-related stock indices, which also contain stocks from particularly climate-damaging companies. Most of these funds pursue a passive strategy that tries to track market indices using exclusion and / or weighting criteria. These strategies result in portfolios that either differ only slightly from the underlying benchmark or are identical if one excludes some fossil fuel companies. The remaining holdings of these funds are then similarly not adjusted to the tracked market index.
According to InfluenceMap, the results of the study show the lack of consistency and the lack of transparency in the orientation of many ESG and climate funds and the selection criteria for stocks that push global climate targets. In view of such apparently massive greenwashing, investors are well advised to take a close look at the fund fact sheet before buying and at least check the specified equity position for particularly climate-damaging investments, as long as the marketing and transparency of climate and ESG funds are not subject to stricter requirements.