Are ESG funds doing enough to support renewables?
The only environmental, social and governance (ESG) funds that have a sector weighting to energy don’t have any major holdings in renewable energy, according to data.
According to FE Analytics, within the Australian Core Strategies universe, only six ethical/sustainable funds in the Australian equities sector held more than 1% weighting to the energy sector.
There were no funds labelled ethical/sustainable in FE Analytics that had a sector weighting to alternative and renewable energy.
Investment in these funds showed the need for investors to perform due diligence, as the holdings may not truly reflect the personal values or requirements of the investors, as many ethical funds focused on screening rather than impact.
The Pendal Ethical Share and Sustainable Australian Share funds held more than 5% in the energy sector (5.5% and 5.7%, respectively), as of 31 August, 2020; however, that was an allocation of 9.2% and 7.2% respectively to BHP.
A spokesperson for Pendal said: “When Pendal’s Ethical Share Fund was first set up the investing criteria did not exclude companies on the basis of fossil fuels.
“Following a review, the fund will broaden its criteria from October 12. One of these changes will be to exclude companies that directly undertake fossil fuel exploration or extraction.”
The four other funds were AMP Capital Sustainable Share, Ausbil Active Sustainable Equity, Dimensional Australian Sustainability Trust and UBS IQ MSCI Australia Ethical ETF.
Ausbil also held an allocation to BHP (8.14%), while AMP Capital’s fund held 2.5% in Woodside, and Dimensional had a 3.5% allocation to iron ore mining company Fortescue Metals.
A spokeswoman for AMP said AMP Capital’s ethical and sustainable funds had a “strong focus” on making investments that ultimately help in the long-term fight against climate change and the effective transition to a low carbon economy.
“As part of our strategy, we have a commitment to support the development and evolution of renewable forms of energy and other breakthrough transition technologies, such as hydrogen and CCUS,” the spokeswoman said.
“While we believe renewables are the future, at this point in time the technology and infrastructure supporting the sector are not yet well developed enough to become the single source of energy to power our planet.
“Therefore, to support the renewable sector we maintain investments in traditional forms of energy we see as critical to stabilise energy supply and ensure a just transition, while the reliability of renewables and viability of other technologies evolves.
“Importantly, these investments are still best of breed in terms of their environmental, social and governance management and supplemented with extensive company engagement – both directly and through industry collaboration – to encourage further ambition to reach the goals of the Paris Agreement.”
Funds were also not required to disclose full holdings and often only showed the top 10, whereas displaying the full holdings was often the norm elsewhere.
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