Scorecard: which asset managers are pushing back on fossil fuel expansion?
    Scorecard: which asset managers are pushing back on fossil fuel expansion?
    News

    Scorecard: which asset managers are pushing back on fossil fuel expansion?

    20 April 2022

    Press release
    Paris, April 20th 2022 – Reclaim Finance and three partner NGOs have today released a scorecard ranking 30 major asset managers on their climate commitments (1), with a focus on their approach to the fossil fuel sector (2). The analysis provides new data on their exposure to companies with the biggest fossil fuel expansion plans (3). Of the 30 asset managers that were assessed, 25 are members of the Net Zero Asset Manager Initiative (NZAM). Yet not a single one of them has set the expectation that companies in their portfolios should quit developing new coal, oil or gas projects in line with climate science. NGOs call on asset managers to urgently restrict investments in fossil fuel expansion and to vote against coal, oil, and gas expansionists during the upcoming AGM season.
    Big exposure and small-scale action 
    The 30 asset managers assessed hold more than $82 billion in companies developing new coal projects. The numbers are even more staggering for the oil & gas industry: together, the 30 asset managers hold $468bn in 12 major oil and gas companies with massive upstream expansion plans (4).  
    The report finds that their policies and investment guidelines, due to vague criteria that leave the door open for the worst polluters, are too flawed for the asset managers to align their entire portfolios with a net zero target. 
    · 17 asset managers now have a coal policy (5) and 12 have an oil and gas policy. Vanguard, State Street Global Advisors and Allianz’s asset management branch PIMCO are among the biggest firms with no fossil policy at all. 
    · Among the asset managers with policies, only seven restrict investments in companies developing new coal projects (6), a number that hasn’t changed since last year, and none restrict investments in companies developing new oil and gas supply projects (7). 
    · More and more policies introduce exceptions to exclusion criteria. For instance, among the seven asset managers that restrict investments in companies developing new coal projects, three plan to introduce undefined exceptions to this rule (8). 
    Even more worryingly, scrutiny reveals a growing trend of policies and targets that apply only to a small share of the asset managers’ assets. 
    · None of the asset managers apply their existing fossil fuel restrictions to all their ‘passively’ managed assets, which is particularly concerning considering ‘passive’ investments keep growing and represent 46% of the assets covered by the report. The nine biggest ‘passive’ asset managers within our sample of 30, are also among the biggest holders of companies developing new coal projects. This is due to none of them applying robust coal criteria to their ‘passive’ funds (9). 
    · Ten of the asset managers have released 2030 decarbonization targets, however, the targets only cover a small share of their portfolios (10).  
    The deeply disappointing findings revealed in the scorecard are published one day ahead of the one-year anniversary of the Glasgow Financial Alliance for Net Zero (GFANZ). The results are a testament to the alliance’s lack of effectiveness, with prominent members such as Vanguard, Credit Suisse and PIMCO identified among the main laggards. 

    Lara Cuvelier, campaigner at Reclaim Finance: “Is the asset management industry changing its investment practices in line with climate science, reducing investments in coal, oil, or gas expansion? Unfortunately, the answer is an emphatic “no”. Leading asset managers are kicking the can down the road without even asking companies to stop worsening the climate crisis. Let’s be clear: drilling a new oil well or opening a new coal mine is not a normal thing to do in a widespread climate catastrophe. BlackRock most embodies the hypocrisy of too many asset managers: whilst being the biggest member of the NZAM, it still invests in the 11th biggest coal producer worldwide and massive coal expansionist Glencore.”   

    Divest or engage: a false debate?  
    The scorecard also analyzes asset managers’ specific requests and escalation strategies towards fossil fuel companies. Despite being very vocal about virtues of engagement to generate climate impact (11), asset managers’ soft and largely unstructured dialogue with fossil fuel companies failed to stop them from developing new oil and gas fields.
    · 25 asset managers state that they engage companies to push for improvements on climate-related issues but none call for a decrease of companies’ overall fossil fuel production or a stop to all new fossil fuel supply projects. 
    · None of the 30 asset managers have clear and comprehensive demands, whilst only eight publicly ask companies to adopt short-term emission reduction targets (12). 
    · The absence of specific requests, matched by credible sanctions, makes engagement activities mostly toothless and ineffective. The six European oil and gas majors, which claim to be the best-in-class of their sector in terms of transitioning their activity, are a case in point. A case study in the report describes their massive expansion plans and misalignment with Paris Agreement goals, illustrating the consequences of investors’ failed engagement towards them. BP, for example, will have used up its entire carbon budget to stay below 1.5°C by 2033 – a fact that does not seem to have warranted pushback from asset managers. 

    Lara Cuvelier, campaigner at Reclaim Finance, comments: “This confirms that the “divestment versus engagement” debate is a big distraction. Asset managers are not engaging companies on the key climate issues when it comes to limiting global warming to 1.5°C. It’s also striking that they are actually sending the opposite signal because they are still buying new debt from fossil fuel developers. Asset managers that provide fresh cash to companies that are ignoring climate science are purely and simply pouring more fuel in the fire.” 

    The report calls on asset managers to finally adopt robust exclusion and engagement policies to tackle fossil fuel expansion, which in practice means that they should be asking their clients to give up their expansion plans, escalate against those who fail meeting this demand, and be ready to divest from them after a short deadline.  
    Press contacts:
    Anaïs Lehnert, Communications manager, anais@reclaimfinance.org, +33 (0)6 70 08 58 98
    Lara Cuvelier, Sustainable Investments Campaigner, lara@reclaimfinance.org, +33 (0)6 68 45 18 93

    Notes :

    1. The report is entitled ‘The asset managers fueling climate chaos’ and is endorsed by NGOs urgewald, ReCommon and the Sunrise Project. You can read the full report here. 

    2. The first edition of this scorecard was released in April 2021. It focused on coal, as one of the easiest asset classes to begin to act on for financial institutions and as the sector that requires the most urgent exit. A year after the International Energy Agency made crystal clear that achieving ‘net zero’ also means no new oil and gas supply projects, this second edition also looks at the oil and gas sector. 

    3. According to the public databases Global Coal Exit List (GCEL) and Global Oil & Gas Exit List (GOGEL) that identify companies operating across the coal, oil and gas value chain including the largest fossil fuel expansionists (e.g. the companies still exploring and developing new reserves, building new oil and gas pipelines, or building new coal plants). 

    4. 12 major oil and gas companies which are among the biggest short-term developers in oil and gas, according to the GOGEL. The companies are: TotalEnergies, Eni, Equinor, BP, Shell, Repsol, Exxon, Chevron, Gazprom, Saudi Aramco, Petrobras and ConocoPhillips. Their combined short term upstream expansion plans amount to 68761 MMboe. 

    5. 13 had a coal policy at the time of the publication of the 1st edition of this scorecard (April 2021).  

    6. This comes just two weeks after the publication of the IPCC report and the call of UN Secretary General Antonio Guterres for investors with net zero pledges to adopt “comprehensive plans, without exceptions or loopholes, and with action” to phase out coal. 

    7. Ostrum has a policy that indirectly excludes companies with expansion plans accounting for at least 50% of all resources under development (according to the GOGEL). 

    8. The policies of Generali Insurance Asset Management and Aegon AM introduce undefined exceptions to their criteria on coal expansion. For M&G Investments, while the exceptions are better defined, the exclusion timeline is too late (divestment will “commence from March 2024 for non-EU/OECD issuers”). 

    9. For example, the biggest European asset manager, Amundi, has a robust coal policy for its active portfolio, but only applies this policy to less than 40% of its ‘passively’ managed assets. 

    10.  Only one asset manager (AXA IM) is about to release targets that will cover 100% of its eligible assets. Nonetheless, as for many other asset managers, the targets will cover only scope 1 and 2 emissions, which highlights the importance of combining any targets with focused commitments on carbon intensive sectors. 

    11. There is a growing trend within the investor community to condemn exclusion and divestment as both unrealistic and ineffective tools to decarbonize the economy, with many investors favoring the “stay vs sell” approach to influence companies. The report defends the view that pitting engagement and exclusion as diametrically opposing practices is at best misguided and at worst a deliberate strategy to avoid exclusion, especially given the weakness of the engagement activities of the firms assessed. 

    12.  Only two asset managers, LGIM and Schroders, clearly link this request to a deadline to comply and an escalation process. While seven firms list voting sanctions as a possibility for non-compliant fossil fuel companies, none describe publicly systematic voting against all directors.