New Analysis Reveals Asset Managers' Complicity in Fossil Fuel Expansion

Thirty of the largest asset managers in Europe and the US do not have sufficiently robust policies to encourage the companies in their portfolios to stop developing new fossil fuel projects. These are the findings of the 2023 analysis of asset managers’ climate action, published by Reclaim Finance, ReCommon, Sierra Club, The Sunrise Project and Urgewald (1).

• Read the report: “Who’s Managing Your Future? An Assessment of Asset Managers’ Climate Action”
• Read the blog: How the World’s Biggest Asset Managers are Driving the Climate Crisis

Using previously unpublished data, the 5 NGOs demonstrate that asset managers are breaching their climate commitments through their investments, particularly by purchasing bonds that have been issued recently by some of the biggest fossil fuel developers. The NGOs are urging the institutional clients of these asset managers, which include pension funds, to demand they urgently strengthen their policies.

For the third year, this report analyses the action taken by the 25 largest European and 5 largest American asset managers (2) to end support for oil and gas expansion, an essential first step for achieving international climate targets. This year, asset managers were assessed on three main indicators:

• Whether they have stopped purchasing new bonds issued by the biggest developers of new fossil fuel projects;
• Whether they set the expectation for the companies they invest in to end fossil fuel expansion (3);
• Whether they have sanctions in place in the case of non-compliance with this request.

"Asset managers continue to add fuel to the fire by buying the bonds from the worst fossil fuel polluters. Their policies are an inadequate response to the climate emergency. They should listen to the science and sanction companies that refuse to stop their devastating fossil fuel expansion plans. It is time for asset managers’ clients to challenge them on this issue and ask them to put in place robust policies to stop this scourge," said Lara Cuvelier, sustainable investment campaigner at Reclaim Finance.

The parent groups of the 30 asset managers have invested US$3.5 billion in bonds issued in the last 18 months by some 40 companies actively involved in fossil fuel expansion (4). At least 21 of the 30 asset managers were found to have invested in the latest bond issued by TotalEnergies, the world's 7th largest developer of new oil and gas supply projects, including the EACOP project (5). These figures are an underestimate because bond markets are notably opaque and investors seldom publish details of these transactions. This lack of transparency is even more problematic given that fossil fuel developers are increasingly seeking finance through the bond market (6).

Asset managers are able to invest in these bonds because of inadequate sectoral policies. The report reveals that while 4 asset managers have committed to stop purchasing new bonds from all companies developing coal projects (7), none have stopped new bond purchases from oil and gas developers. Just one asset manager, Ostrum AM (8), asks oil and gas companies to halt their expansion plans. None have systematic sanctions in place to encourage oil and gas developers to change, either through votes or investment restrictions.

"We need to pay more attention to the bond market when we think about how oil companies like BP and TotalEnergies raise capital for their devastating climate projects. Asset managers have enormous power through their bond purchases and it's time to ask them to flex their muscles and stop this flow of money to fossil fuel developers. There is a lack of transparency in these markets but it is crucial to shed light on this hidden support," said Cuvelier.

The US asset manager Vanguard has the highest level of investments in these new fossil fuel bonds internationally, holding at least US$1.2 billion in bonds recently issued by 19 major fossil fuel developers, including by ConocoPhillips, the company behind the oil drilling Willow project (9). The German group Allianz, parent company of PIMCO and Allianz GI, and the French group BPCE, parent company of Natixis IM, are the biggest European investors. They hold respectively at least US$193 million and US$122 million in bonds recently issued by major fossil fuel developers (10).

Reclaim Finance and its partners are calling on asset managers to stop buying bonds issued by companies developing new coal, oil and gas projects, and at the very least to vote against the management of these companies at forthcoming annual general meetings. These conclusions should also be a wake-up call for these asset managers’ clients. The NGOs are calling on major asset owners to demand action to stop support for fossil fuel expansion before entrusting their money.

“This report clearly demonstrates a collective failure from the investment sector to manage climate risk responsibly. BlackRock and Vanguard are by far the worst offenders, together providing 58% of the recent investments in fossil fuel expansion, while setting very few expectations of fossil fuel companies to pivot away from business as usual. As the world’s largest asset managers, BlackRock and Vanguard have a responsibility to mitigate the growing systemic risk posed by climate change. Failing to do so means failing their clients,” said Jessye Waxman, Senior Campaign Representative with the Sierra Club’s Fossil-Free Finance campaign.

“German asset managers, including market leader DWS, systemically neglect the oil and gas sector's role in driving the climate crisis. They like to publicly stress their rather untransparent and inconsistent engagement activities, hide behind net-zero lingo and dismiss calls for stricter policies. Time for decisive climate action is running out fast and the oil and gas industry is in a historic gold rush, with no apparent interest in real transition," said Julia Dubslaff, finance campaigner at Urgewald.