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Big asset owners could walk if managers fail to reflect climate promises in investment...Read More
Maeve O’Connor, Associate Analyst, Oil, Gas and Mining and report author, said: “Asset managers that join coalitions such as the Net Zero Asset Managers Initiative are signalling to the market that they will invest in line with the Paris target of holding global warming to 1.5°C. If they invest in oil and gas companies that are that are not aligned with this target, they risk their reputation among climate-conscious asset owners while other investors may increasingly be concerned over exposure to energy transition risk.”
Mike Coffin, Head of Oil, Gas and Mining and report co-author, said: “The energy transition from fossil fuels to clean technologies is well underway and is likely to gather pace as the damaging impacts of climate change drive bolder government policies. Growing numbers of investors want to support this transition, and are seeking to align their portfolios with 1.5°C. However, it’s hard to see how they can do this with credibility if they own financial interests in oil and gas companies that are not themselves aligned with the Paris target.”
Many leading asset managers’ investment practices deviate from climate positioning.
As awareness of the climate crisis increasingly permeates the investment community, more and more investors are seeking to ensure that their capital is not being used in ways which could contribute to further global temperature rise.
Missed Pitch finds that asset managers that publicly back efforts to limit global warming to 1.5°C have $400 billion invested in oil and gas companies that are fuelling climate change. The report identifies 25 members of the Net Zero Asset Managers’ initiative (NZAM) that could be misleading clients and putting their investments at risk by holding equity in 15 of the world’s largest listed oil and gas companies, including ExxonMobil, Chevron and TotalEnergies.
Top 40 Asset Managers by Value of Aggregated Oil & Gas Positions at end 2022
Source: Factset; CTI analysis; NZAM; figures for AUM sourced from company websites, annual reports, ADV filings and 13F filings.
Notes: positions in 15 companies only; total positions in oil and gas may be materially higher. Berkshire Hathaway’s AUM figure is its total portfolio value; Wells Fargo’s AUM figures are total group assets; Goldman Sachs’ AUM figure is Assets Under Supervision. Converted from reported currencies at closing current/USD price on 31/12/2022. Managers ordered by value of aggregate position at 31/12/2022.
- To meet asset owner demand for Paris-aligned portfolios, asset managers have sought to label investment vehicles as climate-compatible. However, regulators are beginning to crack down on practices considered “greenwashing”.
- Where portfolios contain constituents that are clearly not aligned with Paris, asset managers may be exposing themselves to regulatory and reputational risk. We find over 160 funds which are named for their sustainability/climate credentials yet hold a combined $4.5bn of investments in 15 oil and gas companies that are not assessed to be aligned with Paris goals.
- Being a signatory of the Net Zero Asset Managers Initiative (NZAM) is a signal to the market that managers will invest in line with a 1.5°C pathway. For this to be credible, investee companies should be climate-aligned.
- Yet, we find many of the largest NZAM members are heavily invested in unaligned oil and gas companies. We analyse the shareholdings of 25 NZAM members into 15 such companies, and find:
- Others, like DWS, Abrdn, and Schroders carry more limited exposures, which were stable throughout 2022.
- The acceleration of the energy transition potentially increases the transition risk exposure of such investments. While increases in holdings are likely the result of high commodity prices in 2022 investors must be aware of the advancing demand substitution risks from new technologies.
- Passive investment products account for some of these increases, raising questions about the compatibility of index products with Paris Agreement goals.
- While managers may argue that an active ownership approach can be used to ensure companies achieve 1.5°C alignment, voting data suggests that managers tend not to support 1.5°C-aligned resolutions.
- Regulators are cracking down on voting practices which could be perceived as contradictory to stated policies on climate.
- Asset owners should clearly express their voting preferences to their chosen managers and monitor them regularly.