The majority of climate-themed equity funds offer only marginal benefits compared to the broader market, according to a new report by the London-based think tank InfluenceMap.
The report scored climate-themed and environmental, social and governance-themed investment funds on the basis of how well-aligned portfolios are with the environmental commitments made by governments, including the Canadian government, in the Paris Agreement. In total, it assessed 723 funds with combined assets of about US$1.7 trillion.
It found that 71 of the 130 funds marketed as climate-oriented were out of alignment with the agreement. Only a small minority of funds were found to be closely aligned with it.
Of the US$67 billion in total assets at these funds, the report also concluded that about US$153 million was invested in businesses involved in the extraction or transportation of fossil fuels. Within the investment sector, organizations involved with the fossil fuel sector have defended that choice on the grounds that, by investing in oil producers, pension funds can push for positive changes within the sector.
Last month, in response to a report critical of the Canada Pension Plan Investment Board’s involvement in the fossil fuel sector, Frank Switzer, managing director of investor relations at the CPPIB, wrote: “We disagree with any simple conclusion that investing across the total energies spectrum is inconsistent with the necessary efforts to address the significant challenges of evolving the global economy to lower emissions. It must happen and the sophisticated array of solutions from across the spectrum will help make it so.”
Returning to the report, of the 593 funds marketed as ESG-related, 421 — or about 71 per cent — were found to be out of alignment with the Paris Agreement. The report noted that the disjunction between fund marketing and asset mix is likely the result of a lack of consistent standards and regulations related to ESG-related issues among global regulators of investment funds.