ETFs are slowing the climate transition

published on 30 December 2022

Did we tell you already that we do not like ETFs because you lose the voting power of the underlying shares? Well, it turns out that they are also slowing the transition to net-zero commitment. 

Get ready it might get a bit technical!


The big promise to Net Zero

A large group of asset managers (people managing money) has pledged to reach a net zero portfolio but 2050. They represent $57 trillion of assets under management. To give you an order of magnitude, BlackRock, the biggest asset manager in the world, weighs $10 trillion. We are talking big figures here.

Great news, right? 

Well, this target is only for 2050, a looooooong time for now. And time is short. The IPCC report on Climate Change warns us that the margin of error is becoming increasingly small. 2050 is too late.

But there is worse.

A fraud commitment?

The problem is that asset managers only look at the assets they actively manage when vocal about their climate commitment.

And this is where it gets tricky.

Most asset managers mix active allocation (buying a certain stock or a certain bond) with passive investing. Passive investing is typically done through ETFs: you buy a tranche of a whole index (think S&P500) or of a whole industry (think all healthcare companies in the US). 

Because they cannot control who is entering those ETFs, asset managers consider that they cannot control the carbon position of those assets. Therefore they exclude those footprints from the calculation. Deflecting responsibilities you said?

In fact, some asset managers only covered 0.55% of their portfolio in the pledge, a new study showed.  No wonder they found that the Net Zero Asset Managers Initiative (NZAMI) was likely to miss its intermediary 2030 target by 60% and totally fail the 2050 transition.

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