Investment funds claiming to be green or socially responsible are being used by major investment firms to invest millions of pounds into fossil fuel companies, according to a new report.
Research from the Common Wealth thinktank claims that US fund managers BlackRock and State Street, and UK-based Legal & General are among asset managers using funds with ESG tags to invest into fossil fuel companies, according to a report from Bloomberg.
The report states that BlackRock, State Street and Legal & General held $1bn in bonds issued by fossil fuel companies in the ESG funds between February and April.
This is not a unique occurrence. Research claims that ESG funds have invested over $1.5bn in the bonds of top coal, oil and gas companies.
Despite the push on sustainability, ESG funds only account for $126trn assets under management, according to data from Morningstar. Fund managers are reportedly looking to increase their exposure to ESG, with managers set to increase their ESG-related AUM from $18.4trn to $33.9trn, according to PwC.
However, ESG critics has accused the asset management industry from greenwashing in an attempt to attract ethical investors.
Common Wealth director Mathew Lawrence told Bloomberg that the existing financial sector strategies do not have an adequate response to the climate emergency, with investment falling way too short.
Lawrence said, “The findings, though shocking, are not unexpected. This is a feature rather than a bug from the ESG logic, which is concerned less with driving real material change in the economy, including decarbonisation, and instead is focused on managing financial risk and reducing financial impacts.”
Bloomberg reached out to BlackRock, State Street and Legal & General.
BlackRock said it clearly discloses the objectives of its funds. It said, “[the funds] provide investors with choice in how they make sustainable investments, whether that be in clean energy, investments that explicitly exclude fossil fuels or those that are more broadly diversified, including investments in issuers that are actively transitioning.”
Legal & General stated that it invests into fossil fuel companies to encourage their transition to more sustainable energy sources.
A spokesperson said: “We believe investing to support companies to make the transition to a low-carbon world will have a greater impact on real-economy emissions than simply divesting.”
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