“We recognize that there is an urgent need to accelerate the transition to zero emissions and that asset managers have a role to play in meeting the goals of the Paris Agreement and ensuring the transition.” With this phrase begins the document signed by dozens of investment fund managers around the world, committing to promote the decarbonization of the economy. Many of these signatories, including the world’s two largest investors, BlackRock and Vanguard, are also among the top funds involved in the coal sector. Far from reducing their positions after having signed the commitment, they remain on the rise, registering significant increases with respect to the previous year.
The banking alliance to reduce emissions continues to finance oil and gas with millions
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The Net Zero Asset Managers (NZAM) initiative was born at the end of 2020 and the list of signatories has been expanding in recent years. It was born in the image and likeness of the Net Zero Banking Alliance, which emerged as a result of the Paris meeting, in order to commit the financial sector to the redirection of financing towards more sustainable economic models that meet the agreed climate transition objective. at this international meeting. Thus, investment fund managers recognize their role in pressuring companies through their investments to make commitments to combat climate change.
These commitments contrast with reports made by different environmental NGOs in which the assets that these managers in the coal industry are encrypted. One of these recent reports is the one published by the German Urgewald and twenty other organizations that annually update the Global Coal Exit List. This list encrypts the investments that the large global funds have, as well as the financing granted by international banks. This report puts at 1.2 trillion dollars, just over a trillion euros, the assets held by the more than 4,000 managers analyzed in more than a thousand companies closely linked to coal. It represents an increase of 16% in just one year.
To account for these assets, those responsible for the report study all companies that have more than 20% of their income from either coal extraction or mining, as well as energy production based on the burning of this fuel. Also included are those that exceed certain production levels and those that have in their portfolio the creation of new plants or new areas of exploration.
BlackRock is the world’s largest fund manager. He is also one of the most influential investors in the entire financial sector. In Spain, it is the main investor in the Ibex35 and is one of the largest investors in the five banks that appear in the Spanish selective. It is also the main investment manager for Spaniards abroad, especially from its various funds in Luxembourg. Its large positions in all the major stock market indices make its CEO, Larry Fink, a widely heard voice in all the markets in which it participates. The letters that it sends to the CEOs of the companies in which the manager participates each year are well known, in which it exposes its vision of the economy, the trends in the financial markets and the need to transition to a lower emissions economy .
Despite this, it appears in the Urgewald report as the main investor in the coal industry. According to the authors of the document, his assets in these activities exceed 108,000 million dollars and he has increased his positions by almost 30% in just one year. One exercise, that of 2021, in which BlackRock signed its adhesion to the NZAM. Fink himself has come to recognize in the past that, beyond the commitment to a low-carbon economy, the manager has return commitments to its clients that are incompatible with a sudden change in investment policy.
Fink has written this week a new letter to shareholders of BlackRock funds to analyze the open situation after the invasion of Ukraine. In it he recovered his messages from the past in favor of the ecological transition, although he recognized that the war in Eastern Europe was going to delay this change. He assured that the transition had to be “just”. “It is important to stress that it will not happen overnight or in a straight line. It requires us to change the combination of energy from brown to light brown to light green and to green”, defends the executive in his letter.
With its growth BlackRock has unseated in 2021 the until now main investor in the coal industry, Vanguard. This manager, also American, is the second largest in the world, behind the one directed by Fink. Its investments in companies closely linked to coal amount to 101,000 million dollars. Its assets have increased by 19%, although the greater growth of BlackRock has snatched the first position in the ranking. Like its competitor, Vanguard is among the NZAM signatories. “No one should be fooled by the presence of BlackRock and Vanguard in the alliance. These two institutions have more responsibility for accelerating climate change than any other institutional investor in the world,” says Yann Louvel, an analyst at Reclaim Finance, another of the organizations participating in the study.
USA, the main investor in coal
Away from these two big managers are other big names among US investors. This is the case of Capital Group, State Street or Fidelity. Among the 10 largest coal investors in the world, only two are from outside the US: Japan’s GPIF and India’s Life Insurance Corporation. Six of the 10 largest investors in the world in coal belong to the aforementioned alliance. The report highlights that US investors account for 56% of the presence of managers in the coal industry. They are followed, by far, by Japan, India and Canada. These four countries, together with China and the United Kingdom, accumulate more than 80% of the world’s investment in coal.
The NZAM alliance itself defends that the signing of the commitment to reduce emissions “does not necessarily mean” that the managers will dispose of these assets. “Commitment and stewardship are key levers and managers need to ensure that the assets they manage are decarbonised in line with net-zero emissions targets and can have more impact on emissions in the real economy than simply divestment,” defends the alliance on its website. That said, we expect managers to factor in potential asset alignment in their investment decision-making, which may result in not allocating capital to high-carbon investments.
In addition to the managers, the report focuses on the banks that participate in the financing of these companies. They do it in two ways: lending money for their projects or insuring the debt issues that these companies use to finance themselves. Taking into account the three years from 2012 to 2021, the report estimates these financing operations at 1.5 billion euros. In this case, Chinese and Japanese banks dominate the ranking of the main financiers in the coal sector. The Chinese ICBC heads the list, with more than 60,000 million, followed by the Japanese Mizuho and Citic. As is the case with asset managers, 10 of the 12 banking entities that grant the most loans to these industries belong to the alliance for zero emissions.
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