Top “climate funds” fail to keep environmental promises, new report claims

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Some of the most popular climate funds in Europe are no better at avoiding carbon emissions than a benchmark index with no environmental focus, according to a new study.

The report by analyst Investment Metrics found that four of the seven best-selling European climate funds were more exposed to carbon emissions than the MSCI World Index, which tracks over 1,600 of the largest companies in North America, Europe and the Asia-Pacific region.

Funds that failed the MSCI index include climate strategies managed by DWS Group, Franklin Resources and Lombard Odier Investment Management, according to Investment Metrics, which provides institutional investors and advisers with portfolio research and data valued at US $ 14 trillion Dollars (12.5 trillion euros).

The results highlight the difficulty climate-minded investors face when choosing funds to reduce their carbon footprint.

It also raises questions about being labeled as financial products marketed with an environmental, social and governance focus.

Concern about greenwashing, a term used for exaggerated or misleading claims about ethical investing, has increased this year in the wake of the ESG market. Bloomberg Intelligence estimates that ESG assets exceeded $ 35 trillion last year and will surpass $ 50 trillion by 2025.

Regulators have started to take a more aggressive stance on monitoring ESG labeling.

DWS, of which Asoka Wöhrmann is CEO, hit the headlines in August when it became known that the Deutsche Bank AG unit was being investigated by the US Securities and Exchange Commission, the Department of Justice and the German regulator BaFin after its former sustainability director alleged its ESG allegations had claims were misleading.

The DWS vehemently rejects the allegations.

The Investment Metrics report said that one of the reasons some climate funds have failed to deliver low-carbon results is because they hold so-called transitional stocks, where companies try to gradually wean themselves from high-carbon activities.

The alternative would be to exclude such firms altogether and ignore transitional assets.

A separate research report published earlier this year by London-based nonprofit InfluenceMap found that more than half of the climate funds sold by asset managers failed to meet the goals set out in the Paris Agreement.

An active approach by fund managers to reducing climate impact can pay off, according to the Investment Metrics report. The DWS Invest ESG Climate Tech climate fund managed by DWS showed the greatest reduction in CO2 emissions.

This improvement was mainly caused by portfolio adjustments.

“Portfolio trading decisions are the main reason for the significant improvement in DWS’s climate change score,” the report says.

“If the portfolio managers hadn’t intervened, the score would only have risen marginally.”

Performance was boosted by buying shares in Japanese pump and turbine maker Ebara Corp and selling positions in companies like electric vehicle maker Tesla, it said.


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