Majority of ESG funds fail to meet their goal

Daan Van Acker, analyst, InfluenceMap.

In light of the DWS probe and denial, fund managers are under increasing pressure to show that their ESG labelled funds deliver the promised goods, However, a new study by InfluenceMap, found that many miss the mark.

In fact, over 55% of fossil-fuel free, low-carbon, and green energy funds were not as sustainable as they had claimed to be and 70% of ESG funds failed to meet their goals, according to the London based climate change think tank.

The report also stated that the climate-themed funds continue to hold $153m in fossil fuel production value chain companies.

The most popular holdings were in companies such as TotalEnergies, Kinder Morgan, Enbridge, Nestle, Halliburton, Chevron, and ExxonMobil.

The group analysed 130 climate-themed funds with $67 bn in assets under management (AuM) using the Paris Agreement Capital Transition Assessment (PACTA) tool which analyses production plan data for more than 3,000 real-economy companies in the fossil fuels, power and automotive sectors.

It said that overall “misalignment is generally the result of these funds simply being adjusted index funds applying exclusion criteria and adjusted weightings. This is the case for many of the ‘Paris-aligned’ funds, who simply divest from the coal, oil and gas sectors, but continue to have considerably misaligned holdings in the automotive and power sectors.”

InfluenceMap said that there was a “very large variation” in scores among the climate-themed funds

Among the largest asset managers by climate-themed fund assets, the think tank said State Street had the poorest alignment across its seven funds – followed by UBS and BlackRock. Meanwhile, Invesco was the asset manager with the highest alignment across its four funds.

Drilling down to the sub-categories of the climate-themed funds, only “clean energy” funds consistently held positive Portfolio Paris Alignment scores – including the two BlackRock iShares Global Clean Energy funds which together hold $12 bn in assets.

InfluenceMap said this is “unsurprising” because they are primarily investing in renewable energy firms with little to no exposure to other sectors.

BNP Paribas Climate Impact and BNP Paribas Global Environment also scored highly, with PACTA analysis treating them as if they were part of the ‘clean energy’ subtype.

Other funds, such as the BNP Paribas Energy Transition and the BNP Paribas Easy Low Carbon 100 Europe, are invested more broadly across PACTA sectors, but continue to be aligned, investing in companies active in green technologies and scaling back brown technologies.

In addition to climate-themed funds, InfluenceMap analysed 593 broad environmental, social and governance (ESG)-themed equity funds with over $265 bn in assets on their alignment to the Paris Agreement.

In total, 421 of these funds – or 71% – had a negative PPA score.  The performance ranged from a negative 100% for the KBC Equity Fund SRI Emerging Markets, Mirae Asset Tiger MSCI Korea ESG Leaders ETF, and Samsung KODEX MSCI Korea ESG Universal ETF to the 100% positive from funds such as the J Safra Sarasin Sustainable Equity – Global Thematic Fund, NN Global Sustainable Equity, and the Aberdeen International Sustainable Leaders Fund.

“As the number of ESG and climate-themed funds has exploded in recent years, so too have concerns among investors and regulators about greenwashing and transparency,” said InfluenceMap analyst Daan Van Acker.

He added, “The lack of consistency and clarity makes it difficult for investors to determine what these funds’ descriptors means in practice,” he added. “This analysis is a further piece of evidence in favour of stronger regulation surrounding the marketing and transparency requirements of ESG and climate-themed funds.”

©Markets Media Europe 2021

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