Fossil fuel investments cost world’s biggest fund manager $90bn, report finds

Climate change risks wipe billions off oil and gas firms

The world’s largest investment firm, managing more than $6.5 trillion (£5.4 trillion), has been accused of costing investors tens of billions of dollars in returns over the past decade by backing fossil fuel companies like Shell and ExxonMobil.

A new study suggests that New York based fund manager BlackRock’s bets on oil and gas companies have underperformed the market to the tune of $90bn as the risks of climate change have become clearer.

BlackRock manages funds, including people’s life savings and pensions, that are worth more than the entire annual output of Japan’s economy. Its chief executive and chairman Larry Fink sends out a letter to investors each year in which he espouses the virtues of investing in with purpose and an eye on social responsibility.

But analysis of the investment giant’s holdings suggests that its rhetoric on climate change risks does not match its actions, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

The researcher and analyst, which receives its funding from philanthropic organisations, calculated that BlackRock’s investments in oil and gas firms have dragged down returns as those companies have destroyed value by failing to properly adapt to climate change.

The study undermines arguments from some fund managers that they must invest in oil and gas firms in order to fulfil their duty to act in the best interests of investors.

Three quarters of BlackRock’s estimated lost returns have stemmed from just four companies: ExxonMobil, Royal Dutch Shell, BP and Chevron, all of which have underperformed the market.

A fifth company, General Electric (GE), has lost BlackRock investors $19.1bn between 2008 and 2018, when compared to the returns it could have made by investing in shares that performed in line with the wider stock market.

BlackRock holds more than half a billion shares in GE which saw an unprecedented $193bn wiped off its stock market valuation between 2016 and 2018.

IEEFA attributes much of this collapse in value to the fact that GE failed to anticipate the collapse of traditional fossil-fuel power station construction, a key market for the company which supplies turbines for the plants.

BlackRock’s biggest mistake during this period, according to the research, has been its stake in ExxonMobil, which could have netted investors an extra $45bn if the money had been invested elsewhere.

BlackRock has consistently maintained that it cannot simply shift funds out of particular stocks because many of its funds are passively managed, meaning that investments are selected by criteria that fit with investors’ needs, rather than having a fund manager who actively picks the shares.

But IEEFA argues that peers such as Amundi and Norway’s Norges Bank have developed low-carbon investment strategies that are as cost-effective as BlackRock’s passive investment strategy.

As the custodians of trillions of dollars in global wealth, institutional investors are increasingly being called upon to take action to prevent climate change by removing funds from companies who are not doing enough.

The problem is more and more being framed as a financial as well as an ethical one.

The Bank of England last year estimated that lack of action to move towards a low-carbon future could see up to $20 trillion wiped off the value of assets as they become useless or “stranded”.