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July 15, 2022updated 03 Aug 2022 9:39am

Big stakes in polluters belie Vanguard’s climate statements

Are the most polluting companies' shareholders – like Vanguard – only paying lip service to the financial risks of climate change?

By Adrian Murdoch

Vanguard, climate
The action behind the statement: Investors such as Vanguard are concerned about climate change but have large stakes in the world’s largest greenhouse gas emitters. (Image by wildpixel via iStock)
  • Index provider MSCI estimates that only 11% of companies are aligned with a 1.5°C temperature rise.
  • Vanguard is the largest single shareholder in six of the ten most polluting companies in the world.
  • The only investment firm in a significant polluter without any climate change policy at all is Los Angeles-based Evoke Aris.

This story was updated to reflect changes made by MSCI in its calculations of the largest corporate polluters.

The message about the need for climate change is still not getting through.

The latest MSCI Net-Zero Tracker, published at the end of June, found that less than half (46%) of listed companies align with a 2°C temperature rise – the top end of the Paris Agreement goal.

Only 11% were aligned with a 1.5°C (or lower) temperature rise above pre-industrial levels, according to MSCI’s analysis of 9,189 large-, mid- and small-cap listed companies across 23 developed markets and 27 emerging markets.

The New York-headquartered index and analytics provider estimates that this covers 99% of global equities.

The top ten polluters globally by total greenhouse gas emissions are mostly the usual suspects: the oil and gas majors (see chart below). These range from the Saudi Arabian Oil Company, better known as Saudi Aramco, to US-based Chevron.

“The reality underscores the tension between satisfying the urgent demand for energy at the cost of putting more greenhouse gases into the atmosphere and illustrates the challenge for net-zero aligned investors in the near term,” is how MSCI describes it.

Thanks to the surge in oil prices after Russia’s invasion of Ukraine, investors in these companies have been sitting pretty with many showing significant returns, for the most part double-digit. Saudi Aramco is up 25%, BP is up 28.4% and Coal India is up 47%, for example..

All of the names on the list are aligned with temperature rises well above 2°C. According to MSCI estimates, they are all on a path for a rise above 4°C, something scientists agree would wreak devastation on the planet. The only exceptions are Shell, which is aligned with 2.8°C, and BP (aligned with 2.9°C).

However, many sustainability reports it publishes, an oil drilling leopard, like Saudi Aramco, is unlikely to change its spots. But there is a starker disconnect between the sustainability claims of some of its largest investors and the reality.

Capital Monitor has looked at the largest shareholders in each of the biggest polluters, with the exception of China Shenhua Energy, for which it is difficult to find accurate data.

Fiduciary duty

Take the Pennsylvania-based asset manager Vanguard, which has $7.2trn under management.

In the firm’s 2021 investment stewardship report, chairman and chief executive Tim Buckley calls on companies “to act on the threat of a changing climate”. And at the top of its website’s sustainability pages, Vanguard says it considers climate change “a material risk to many companies and their shareholders’ long-term financial success”.

However, Vanguard’s ambitions in being part of that change extend largely only to itself. The asset manager has earmarked 2025 operational emissions reductions that include a 20% cut in employee emissions from a 2021 baseline, a 5% reduction in electricity consumption, a 20% cut in water consumption, and a target that 80% of waste be diverted from landfill.

But although Vanguard says it does factor in Scope 3 emissions – those connected with a company but outside its direct control – these are limited in scale. These include purchased goods and services – such as shuttle, security and other service vehicles – fuel- and energy-related activities, waste generated in operations, business travel, employee commuting, and upstream leased assets.

What it does not include, Vanguard makes very clear, is “fund investments”, where its financed emissions sit. Asset manager and peer BlackRock shares the same view on Scope 3 despite the fact that the UK environmental consultancy Carbon Trust definition of Scope 3 includes investments.

As a result, Vanguard is the largest single shareholder in six of the companies on the list: BP, Chevron, Exxon Mobil, Saudi Aramco, Shell and Volkswagon.

To put this omission into context, Vanguard says its entire global carbon footprint last year was 57,205 tonnes of Scope 1 (direct greenhouse gas), 2 (generated indirectly by the likes of electricity, heating and cooling) and 3 emissions. Saudi Aramco last year had 2.1 billion tonnes of Scope 1, 2 and 3 emissions. Vanguard’s holdings in the top ten emitters give it exposure to 5.4 billion tonnes of carbon dioxide emissions.

Vanguard says that its status as a passive fund house – one that sells investment products based on exposure to third-party indices – abrogates it of responsibility for such emissions.

“Just a reminder that the majority of Vanguard’s assets are held by more than 30 million individual investors that have chosen to invest in low-cost, broadly diversified index funds which track market cap indices,” Caroline Hancock, head of public relations for Europe, Vanguard, tells Capital Monitor by email.

Although there is an argument to be had here concerning the passive investment model, Russia’s invasion of Ukraine has shown the influence investors have in getting index providers to adjust the constituents of indices when there is a clear moral and financial imperative.

Vanguard is not alone

While Vanguard is a prime example of an investor with publicly stated sentiments and actions that do not appear to align, it is not alone.

New Jersey-based investment manager Harding Loevner, with $75bn in assets under management (AUM), is the largest investor in Australian multinational mining, metals and petroleum company BHP.

The company’s website shows it is a signatory to the Principles for Responsible Investing (PRI) and the UK Stewardship Code. The former says that it is “working to help investors protect portfolios from risks and to expose them to opportunities in the shift to a low-carbon global economy”, while the latter says explicitly that it expects signatories to consider environmental and social issues, including climate change.

Equally, the company seems to acknowledge the financial risk that poor climate management has on its investments. “Companies that operate with disregard for their environment, for the societies in which they pursue their business, or for the principles of governance by which they should be supervised on behalf of shareholders put at risk their long-term cash flows and share price,” Harding Loevner notes in its document on responsible investment.

It is a similar story at US-based asset manager Dimensional Fund Advisors ($659bn AUM). Via two funds it is the largest investor in PetroChina, Asia’s largest oil and gas producer.

In Dimensional Fund Advisors’ 2021 annual stewardship report, published in February, Kristin Drake, head of investment stewardship, acknowledged that “environmental and social issues, especially climate change, were a key focus for our stewardship team as well as for many portfolio companies and clients”.

While Dimensional has engaged with some petrochemical giants – it voted with activist hedge fund Engine No. 1 to support new board members last year, for example – there is little on its website about its dealings with PetroChina, for example.

Sleight of hand

We can go on. The largest private sector investor in Kolkata-headquartered Coal India, the world’s largest coal producer – which MSCI estimates is aligned to a temperature rise of above 4°C – is HDFC Bank.

Addressing climate change is part of the Mumbai-headquartered bank’s CSR policy – it says climate change mitigation and environmental improvements are essential elements of its strategy for sustainability. And, although social reform and education are clearly the bank’s priorities, its most recent sustainability report emphasises environmental compliance.

“We develop and adopt comprehensive business models to ensure low-carbon transformational growth across the entire value chain, and thus contribute towards worldwide efforts to limit global warming to below 2°C,” it writes.

The only investment firm on the list with no climate change policy at all is Los Angeles-based Evoke Aris ($17bn AUM), which via its RPAR Risk Parity ETF is the largest single investor in PetroChina. Despite the images of green hills on its website, there is not a word about climate, the environment or sustainability anywhere on the website or in any of the company’s quarterly market updates.

Given the sleight of hand from the other investment management firms, such transparency – or at least lack of questionable promises – is strangely admirable.

As Capital Monitor maintains, we are not here to moralise on how investors and banking institutions go about their business, but we will hold them to account to the public statements and commitments that they make. If you believe climate risk is a material financial risk but choose to invest in the biggest polluters in the world then something doesn’t add up.

Capital Monitor is hosting the Webinar series, Making Sense of Net Zero. Find out more information on

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