Investors’ US$4.3trn in Fossil Fuels Stains Green Progress
NGOs urge financial institutions to “draw a red line” on fossil fuel expansion.
Thousands of institutional investors globally remain heavily invested in fossil fuel companies, despite commitments to decarbonise their portfolios in line with the goals of the Paris Agreement.
Environmental and human rights non-profit Urgewald and 13 NGO partners have published the 2024 edition of ‘Investing in Climate Chaos’ – a platform that records the fossil fuel holdings of over 7,500 institutional investors.
They found that, as of May this year, these institutional investors collectively held US$4.3 trillion in bonds and shares of fossil fuel companies featured on Urgewald’s Global Coal Exit List (GCEL) and Global Oil and Gas Exit List (GOGEL).
The vast majority of them (2,048 out of 2,928) are either exploring or developing new hydrocarbon reserves or planning new fossil fuel infrastructure such as pipelines, liquefied natural gas terminals and coal- and gas-fired power plants.
Of the US$4.3 trillion total, US$1.2 trillion is invested in bonds and shares of companies listed on the GCEL, while US$3.8 trillion is invested in GOGEL-listed ones. The remainder are listed on both databases.
“If institutional investors continue backing companies that are still expanding their coal, oil and gas operations, it will be impossible to phase out fossil fuels in time,” said Katrin Ganswindt, Head of Financial Research at Urgewald. “Investors need to draw a red line on fossil fuel expansion, and they need to do it now.”
This trend goes against the fact governments, investors and companies have all made net zero commitments, and that COP26 had ended with an agreement to accelerate the phase-down of unabated coal. Meanwhile, 5,260 institutional investors continue to hold bonds and shares in coal companies, according to Urgewald.
“Many of these investors claim to be engaging the industry, but their engagement efforts have negligible impact,” said Ganswindt. “Over 95% of companies on the GCEL have failed to set a coal exit date and 40% are still planning to develop new coal assets. Investments in these companies are blocking the energy transition.”
Although a further commitment was made at COP28 to transition away from fossil fuels, 96% of oil and gas producers are still exploring and developing new oil and gas reserves. Annual capital expenditure on oil and gas exploration has increased by more than 30% since 2021.
“7,245 institutional investors are locking us into a high-carbon future through their investments in an expanding oil and gas industry,” Ganswindt argued.
The lion’s share
Investors from just ten countries are currently responsible for 91% of institutional investments in the fossil fuel industry. These include the US, UK, Canada, Japan, India, China, Norway, Switzerland, France and Germany.
US-based institutional investors alone collectively hold the overwhelming majority: US$2.8 trillion of the US$4.3 trillion. Although their investments span 62 countries, the biggest beneficiaries are domestic oil and gas majors ExxonMobil, Chevron and ConocoPhillips. Exxon alone adds up to US$288 billion in investment.
On an individual basis, the four biggest investors in the fossil fuel sector – collectively holding and managing US$1.1 trillion in investments – are also headquartered in the US.
Vanguard leads the pack with coal, oil and gas holdings amounting to US$413 billion, followed by BlackRock (US$400 billion), State Street (US$171 billion) and Capital Group (US$165 billion).
“This mirrors the complete lack of action by US regulators to effectively monitor and address the climate and transition risks of large institutional investors,” said Alec Connon from the Stop the Money Pipeline. “This inaction lays the groundwork for the next economic crisis and puts the world on a fast track towards climate chaos.”
Other jurisdictions, however, are also home to some of the world’s largest institutional investors in the sector – including two sovereign wealth funds: Japan’s Government Pension Investment Fund (GPIF) and Norway’s Norges Bank Investment Management (NBIM).
Mounting evidence
Proof that demonstrate institutional investors’ continued support for fossil fuels have steadily accumulated in recent months.
Earlier this year, Sierra Club’s Fossil-free Finance campaign revealed that BlackRock, Vanguard, JP Morgan Asset Management, State Street Global Advisors and Invesco collectively held US$741 billion in shares and bonds across fossil fuel companies.
Last year, a report from Reclaim Finance showed that 229 of the world’s largest fossil fuel developers received investment from 161 (29%) members of the Glasgow Financial Alliance for Net Zero (GFANZ). As of September 2022, 58 of the largest members of the Net Zero Asset Managers initiative (NZAM) held over US$840 billion in stocks and bonds in 201 major fossil fuel developers.
Carbon Tracker In addition, Carbon Tracker recently highlighted ties between NZAM members and laggard oil and gas majors. According to the think tank, 25 members – alongside 65 other asset managers – collectively invested US$417 billion into 15 of the world’s largest oil and gas companies in 2023.
But fossil fuel financing isn’t only restricted to institutional investors. In 2022, banks provided an estimated US$673 billion of that funding. Unsurprisingly, the largest financial flows came from North America-based entities, with JP Morgan Chase, Bank of America, Citi and Wells Fargo having collectively contributed 28% of that amount.
“2024 needs to become the turning point: the year where central banks and regulators finally act on Article 2.1(c) of the Paris Agreement and take measures to ensure that financial flows are in line with it, instead of pitted against it,” said Ganswindt. “Institutional investors need to start shifting their trillions to supercharge the energy transition – not fossil fuel expansion.”
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