‘Sustainable’ pension funds accused of greenwashing billions held in oil and gas companies

People who invest their pensions in funds that claim green credentials may actually be backing the world’s largest oil and gas companies be warned.

The Carbon Tracker Initiative said asset managers have invested $376bn (£295bn) in oil and gas companies, despite publicly pledging to back efforts to limit global temperature rise to 1.5C . The London and New York-based environmental think tank found that more than 160 funds with a green label held $4.6 billion across 15 companies, including ExxonMobil, Chevron and TotalEnergies.

It also found that 25 members of the Net Zero Asset Managers initiative had invested in those companies, with some increasing their holdings by 2022. NZAM said its international initiative started two years ago and investors needed time to change their strategies.

The warning comes as the UK’s Financial Conduct Authority prepares to publish anti-greenwashing rules that aim to clean up how investment funds are labeled.

Just under 50% of all UK employees now contribute to employer or private pension schemes where they can choose how their money is invested, a huge increase since 2012 when employers were legally forced to automatically enroll workers in a workplace plan. Most people with a private pension or stocks and shares ISA choose how to invest their money, and many emphasize sustainability.

The financial industry has reacted by creating funds identified as sustainable, climate, carbon, transition or ESG, short for environmental, social and governance.

“What we found is that these funds, despite their names, can often include large positions in fossil fuel companies,” said Maeve O’Connor, one of the report’s authors and an analyst at the Carbon Tracker Initiative. “For retail investors, that might seem misleading. If I’m investing in a green fund, do I want my investment to go to ExxonMobil? Probably not.”

According to the report, BlackRock’s ACS Climate Transition World Equity Fund says it invests in companies “well-positioned to maximize opportunities and minimize potential risks associated with a transition to a low-carbon economy,” but has $219 million in 10 of the Top 15 oil and gas companies.

O’Connor said asset managers were typically given performance targets over short periods, which could influence their thinking. She said: “They could be assessed anywhere from two to five years and that timeframe doesn’t really fit with the realities of the energy transition.”

Coalitions such as the UK Divest and Share Action campaign for pension funds to be invested sustainably. Robert Noyes, energy economist at Platform London, part of UK Divest, said that with around £2bn invested in pensions, it was the biggest source of investment in the UK and people should ask their pension providers for information.

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“People should ask three questions,” he said. “Do you invest in the problem, as a company that spends money on fossil fuels? Do you invest in things that drive changes in the real economy that lead environmental programs? So, for example, it’s hard to see how the investment in Microsoft is driving a shift to net zero.

“And third, is there talk of the need for political action?”

A NZAM spokesperson said that while its partners “share Carbon Tracker’s perspective that the oil and gas industry must decarbonise very rapidly to meet the urgency of the climate crisis, the Net Zero Asset Managers’ statement of commitment does not require that signatories choose equity stakes to achieve a particular climate goal.” He added: “Passive investors cannot divest from the oil and gas sector without significantly changing their investment strategy.”

NZAM expected those funds with passive portfolios to engage in dialogue with companies, proxy voting and policy advocacy to align their holdings with the 1.5C commitment. Asset managers were relying on governments to meet their own commitments under the Paris agreement, the spokesperson added.

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