BlackRock’s BGF Emerging Europe Fund has been named the UK’s ‘dirtiest fund’ in the first ever ranking to show how exposed investment products are to polluting industries.
The fund, which has assets of $129 mn, has a carbon footprint 176 times greater than the UK’s cleanest fund, the Royal London Sustainable World Trust. Its carbon footprint was also 10 times bigger than that of the total MSCI Emerging Markets Index.
The ranking of 1,200 UK funds by As You Sow, a nonprofit organization, comes as concerns mount that investors could suffer big losses if companies with large carbon footprints are negatively affected by attempts to tackle climate change. Last year, governments signed the Paris Agreement to tackle climate change.
John Davis, director of financial industry at South Pole Group, which provided the data for the ranking, says: ‘Understanding the carbon footprint of a fund is important for an investor as the world begins to trend toward sustainable investments and away from those that are carbon-intensive.
‘There are now great opportunities to invest in companies that are actively addressing climate change and also to avoid the regulatory risks that arise from climate change, such as carbon taxes and reporting regulations.’
BlackRock last month issued a report warning that climate change was a big investment risk, but defended the high-carbon footprint of its Emerging Europe Fund, saying its investable universe was heavily concentrated in carbon-intensive industries. The fund’s 4 percent holding in Inter RAO, a Russian energy group, accounts for the vast majority of its large carbon footprint.
‘We believe investors can no longer ignore climate change,’ says a BlackRock spokesperson. ‘We are at the start of a long-term educational journey for both ourselves and the market about carbon risk in portfolios.’
The As You Sow research covers 8,500 investment products globally, with the aim of enabling investors to find out whether they are exposed to climate change risks.
The Invesco Perpetual High Income Fund, the UK’s largest fund with £11.7 bn ($14 bn) in assets, is three times more exposed to carbon than the £7.9 bn Stewart Investors Asia Pacific Leaders Fund, the fourth-biggest. The M&G Global Dividend Fund has the largest carbon footprint of the UK’s 10 biggest funds.
Meanwhile, New Zealand’s sovereign wealth fund says it is promising to reduce its investments in fossil fuels and target clean energy in a bid to prepare for climate change. The New Zealand Superannuation Fund confirmed it is pledging to cut the carbon footprint of its NZ$30 bn ($21.45 bn) portfolio, including selling down high-risk investments.
While the move comes with no set targets and will not prevent the fund from investing in any particular sector, chief executive Adrian Orr says it will lead to some parts of its portfolio being sold. The fund wants to reduce its carbon footprint materially in a relatively short space of time, he adds. The fund will publish its carbon footprint and fossil fuel reserves annually.
‘In coming years, the global energy system will transition away from fossil fuels,’ says Orr. ‘Some assets we invest in today may become uneconomic, obsolete or face a dwindling market.’
Established under the previous Labour Government under Helen Clark in a bid to partially cover New Zealand’s future pension needs, the fund claims the move will not hurt returns. It admits, however, that there could be a ‘limited’ impact if global policy makers take less action on carbon reduction than is anticipated.
