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70% of Passive ESG Funds Are Exposed to New Oil and Gas Projects

A total of 70% of passive funds passed off as “sustainable” by five of the largest asset managers in the U.S. and Europe are exposed to companies developing new oil and gas projects, environmental organization Reclaim Finance said in a report on Wednesday, calling out asset managers for greenwashing ESG-labeled passive funds.

In new research published today, Reclaim Finance has examined 430 “sustainable” passive funds managed by five of the biggest passive fund managers – Amundi, BlackRock, DWS, Legal & General Investment Management (LGIM), and UBS AM – and found that 70% of the passive funds are exposed to companies developing new fossil fuel projects.

These giant asset managers “are turning a blind eye to the climate impact of their passive investments, with funds invested in oil giants including TotalEnergies, Shell and ExxonMobil, and coal developers such as Glencore and Adani,” Reclaim Finance says.

The campaigners’ analysis focused on 25 high-profile ESG-labeled passive funds, and found that the majority were investing in some of the world’s biggest oil and gas developers, such as ExxonMobil and Shell.

“The analysis also shows that especially when these funds are invested in bonds, they provide direct financing for fossil fuel developers,” the authors of Reclaim Finance’s report wrote.

The campaigners call on regulators “to outlaw sustainable claims for funds supporting fossil fuel expansion.”

“Even asset managers which claim to have climate policies are part of the problem as most don’t apply their policies to passive funds. It is time for institutional investors and regulators to wake up and take action to stop these misleading claims,” Lara Cuvelier, Sustainable Investment Campaigner at Reclaim Finance, said in a statement.

At the end of last year, data from Morningstar showed that funds promoting ESG goals – the world’s biggest class of ESG funds with an estimated $5 trillion in assets – have raised their exposure to the oil and gas industry over the past two and a half years. The EU registered funds as “promoting” ESG goals had 2.3% of their portfolios in oil and gas assets at the end of the third quarter of 2023, compared to just 1.4% when the EU introduced the so-called Sustainable Finance Disclosure Regulation (SFDR) in 2021, the data showed.

By Tsvetana Paraskova for