Chapter 7: Fossil-Washing? The Fossil Fuel Investment of ESG Funds

Regulators are starting to question what it means for an investment vehicle to be labelled environmental, social, and corporate governance (ESG). Also, retail climate-conscious investors have a right to have clear information on their investments. Here I analysed all the large equity exchange traded funds labelled as ESG available at the two largest investors in the world: Blackrock and Vanguard. For Blackrock, out of 82 funds analysed, only 9% did not invest in fossil fuel companies. Blackrock ESG funds include investments in Saudi Aramco, Gazprom or Shell. But they exclude ExxonMobil or BP. This suggests a best-in-class approach by the fund manager, picking only certain fossil fuel companies that they see as generating less harm. But it is unclear what the criteria used are. For Vanguard, funds listed as ESG did not contain fossil fuel investment. Yet this needs to be nuanced as information provided by Vanguard on investments is less transparent and Vanguard offers fewer ESG funds.