Vanguard and BlackRock, the world’s two largest asset managers, have been singled out for having the highest exposure to the global coal industry, holding $170bn between them in some of the most notorious polluters.
Research conducted by more than 25 lobby groups and climate activists including Urgewald, Reclaim Finance and Rainforest Action Network, analysed financial flows to 934 companies across the coal sector, such as Glencore and RWE.
Vanguard was found to have almost $86bn invested across companies included in the research, putting it ahead of BlackRock with just over $84bn. The two US-headquartered money managers account for 17% of institutional investment in the global coal industry between them, according to the analysis.
In total, institutional investors such as pension funds, asset managers, insurance companies and hedge funds, have a total of just over $1trn invested the worldwide coal sector. However, the research found US investors accounted for the majority of this total, at 58%.
“While many large EU investors have begun screening coal companies out of their portfolios, the vast majority of US investors have refused to adopt coal exit policies. Our research underscores how dire the consequences of this failure are,” says Katrin Ganswindt, head of financial research at Urgewald.
The research comes as global asset managers have pledged to tackle climate change risk head on, either by excluding certain companies from investment portfolios or increasing their engagement activities to spur some of the worst polluters to shift to more sustainable business models.
A spokesperson for Vanguard said: “Vanguard cares deeply about the long-term impact of climate risk. The devastating effects of climate change reinforce how important it is for companies to address one of the most existential issues of our lifetime.
“Vanguard is attending to this challenge and is representing the long-term interests of our investors through our investment stewardship programme, which includes company engagement focused on boards’ governance and oversight of climate-related risks and on clear disclosure for investors.”
Vanguard said in its discussions with company boards, it makes clear “our expectations that they pursue globally accepted climate risk mitigation targets such as those in the Paris Agreement and report on their short-and long-term progress toward meeting those goals”.
“Where companies are not moving in line with market regulation or taking the necessary action to mitigate climate risk, we will take action on behalf of Vanguard funds.”
The report comes a year after BlackRock chief executive Larry Fink said the US asset manager would cut its exposure to companies which generate revenues from thermal coal production.
BlackRock said it has achieved 100% ESG integration across its active fund management strategies, and where it has discretion, has completed the exclusion of equity and bond holdings in companies generating more than 25% of revenues from thermal coal production.
“Across index strategies, we provide clients choice – through the industry’s largest ESG index offering – as well as transparency and engagement,” the asset manager said in a statement.
Earlier this month BlackRock outlined the approach it wanted company boards to take to align business models with a global net zero economy by 2050. This included a requirement to disclose scope 1 and scope 2 emissions, which are those which originate directly from a company, or indirectly from the consumption of electricity or gas.
It wants also companies in carbon-intensive industries to report scope 3 emissions, which include activities such as business travel, transportation or waste disposal.
“Where we do not see sufficient progress, we take voting action,” said BlackRock, pointing to votes it has taken against company directors at Uniper, Fortum, CEZ and PGE.
While US investors investors had the most exposure to the coal industry, investors from Japan account for the second highest share of institutional investments in the coal industry, with $81bn invested. Japan’s Government Pension Investment Fund alone holds bonds and shares in value of $29bn across companies analysed in the research.
UK investors represent the third largest group, with collective holdings of $47bn.
“While the UK government recently announced that it will end public financing for overseas fossil fuel projects in 2021, most UK institutional investors have not even begun to expel coal from their portfolios,” said Ganswindt.
“Unless they do their homework soon, the UK-hosted COP 26 will become a big embarrassment for these institutions.”
The report calls for large investors and other institutions which finance the coal sector to pursue “immediate coal exit policies”, citing actions already taken by insurers such as Axa and banks including Crédit Mutuel and UniCredit.
Yann Louvel, policy analyst for the NGO Reclaim Finance, said: “Now is the time for the finance industry to act. A speedy exit from coal finance and investment is not only do-able and desirable, it is a question of survival.”
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