In part three of his monthly sustainability news round-up Oliver Balch reports on growing pressure for the world's largest asset manager to step up action on climate change as the sustainable finance industry begins to get serious traction
After years on the margins, the sustainable finance market finally appears to be gaining serious traction. According to recent research from Fitch Advisors, the total amount of assets under management in environmental, social or governance-related funds jumped by 15% in the six months from January to June. This compares favourably to 2018, during which the ESG fund market grew by a mere 1%.
The total ESG universe now stands at $45.2bn. Helping explain the increase is the launch of a collection of ESG funds, coupled with the conversion of existing funds. Notable among the new funds is BlackRock’s $400m Liquid Environmentally Aware Fund, launched back in April. More recently, State Street Global Advisors issued a US-domiciled ESG Liquid Reserves Fund in July. Of the 19 major money market funds tracked by Fitch, 14 originate in Norway or France, the latter accounting for 88% of all the assets under management controlled by ESG money-market funds.
In another significant move for the sustainable finance movement, Swedish pension and life insurance provider Nordea Liv & Pension Sweden recently let it be known that it has moved 22 billion Swedish kroner ($2.34bn) into low-carbon investments with strict sustainability criteria. The step, executed over the first six months of this year, represents a 50% reduction in the carbon-intensity of its portfolio. It marks an escalation of conversion measures in 2018, which saw the pension and insurance firm move 7bn SEK into a similar class of green investments. The eventual objective of Nordea Liv, a subsidiary of Swedish bank Nordea, is to shift its portfolio onto a footing that accords with the Paris agreement goal of a temperature rise below 1.5C.
The IEEFA report says BlackRock has steered away from investor strategies to pressure companies to align with the Paris Agreement
Welcome as such moves are, campaigners are not bending backwards to utter words of praise. Indeed, they have been quick to point out some anomalies in BlackRock’s embrace of sustainability, in particular. As the world’s largest fund manager (with $6.5trn of assets under management), one would expect BlackRock to come under scrutiny, but the numbers do bring credence to complaints.
As the Institute for Energy Economics and Financial Analysis (IEEFA) notes in a probing report, BlackRock’s ESG funds comprise a mere 0.8% of its total portfolio.
Also highlighted in IEEFA’s report is the $4.3trn in assets that it “passively” manages: ie with little or no strategy for risk-adjusted returns in a low-carbon future market scenario. The point is rammed home by the fact that 75% of BlackRock’s $90bn in estimated losses comes from four companies alone – all of which are fossil fuel majors (ExxonMobil, Chevron, Royal Dutch Shell and BP).
The report says BlackRock has steered away from investor strategies to pressure companies to align with the Paris Agreement by the likes of the Norwegian Sovereign Wealth Fund, the New York State Common Retirement Fund, Local Government Super of Australia, AP4 of Sweden, and Legal & General Investment Management.
“Even though the International Energy Agency has repeatedly warned that the world is on the wrong trajectory to deliver on the Paris Agreement, BlackRock is one of the largest funds most likely to align itself with fossil fuel boards and their entirely inadequate sustainability plans,” the report says.
BlackRock is far from alone. The report cites a 2019 survey of 127 pension plans with €2.2trn in assets under management by Create Research, which finds that 27% of those surveyed believe index managers are not meeting their stewardship goals at all. A further 23% of respondents say that they are only meeting them to a “limited extent”.
This article is part of this month’s CSR Cheat Sheet round-up. See also: