Institutional investors have $1tn (£710bn) invested in the thermal coal industry despite the sector's huge climate impact and commitments from many top investors to go green.
New research from 25 climate groups — including Urgewald, Reclaim Finance, Rainforest Action Network, and 350.org Japan — found that almost 4,500 institutional investors around the world had $1.03tn invested in the thermal coal value chain at the end of last year. The estimate was based on analysis of the Global Coal Exit List and marks the first time researchers have sought to measure the entire finance industry's exposure to coal.
Almost 60% of the funding comes from US-based investors. 17% comes from BlackRock (BLK) and Vanguard, two of the biggest asset management companies in the world. Researchers said the two were "in a class of their own."
Researchers also analysed the banking industry's support for the coal sector. 381 banks have lent $315bn to the coal industry in the last two years, researchers said. Commercial banks have also helped the sector raise over $800bn through bond issues and share sales.
Researchers said the actions of banks and asset managers were not in line with the goals of the 2015 Paris Agreement, in which world leaders agreed to try and limit global warming to under 2°C this century. Key to meeting that goal is a drastic reduction in the use of fossil fuels. Coal, and particularly thermal coal, is one of the worst for the environment.
Paddy McCully, climate and energy program director at Rainforest Action Network, said Wall Street was "a huge driver of climate pollution around the world."
"Its massive investments in the coal industry are driving us ever deeper into a climate crisis,” he said. “Vague net zero announcements for 2050 – an entire generation into the future – are masking financial institutions’ refusal to take decisive action now.
"The bulk of coal financing and investment must be ended before 2030. This is the decade that counts."
Many professional investment companies and banks are taking steps to address climate issues. BlackRock founder and chief executive Larry Fink last year pledged to make tackling the climate crisis his company's top priority. He said sustainability would be BlackRock’s “new standard for investing” and repeated his pledge last month.
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Banks like Citi and Barclays have also made commitments to transition to net zero. Citi has publicly committed to reducing its exposure to coal companies to zero by 2030.
"These numbers provide a sobering reality check on bank’s climate commitments,” said Yann Louvel, a policy analyst for Reclaim Finance. "The vast majority of banks’ coal policies have so many loopholes that their impact is almost meaningless."
Financiers justify their continued engagement with coal companies by arguing that they are helping to finance a transition to more sustainable business models and greener energy generation.
BlackRock has demanded that all companies it is invested in disclose their full emission footprint and draw up sustainability plans. The business has pledged to vote against management teams that don't draw up sustainability plans.
"Our conviction is that climate risk is investment risk," a spokesperson for the company said. "Among the many initiatives to help our clients navigate this risk, we have both achieved 100% ESG integration in our active strategies and, where we have discretion in these strategies, completed the exclusion of equity and bond holdings in companies generating more than 25% of revenues from thermal coal production."
Both BlackRock and Vanguard manage the majority of their money passively, meaning money managers have no discretion over where to put money. Many investors buy products like ETFs that track indexes such as the S&P 500. These products include all shares on a given index, meaning coal companies could be on the list. BlackRock and Vanguard are forbidden from taking action to tackle to coal exposure.
A spokesperson for Vanguard said the company "cares deeply about the long-term impact of climate risk" and said it was pushing companies it invested in to draw up sustainability plans.
"Where companies are not moving in line with market regulation or taking the necessary action to mitigate climate risk, we will take action on behalf of Vanguard funds," the spokesperson said.
Without continued engagement, businesses could go bust and leave investors with losses and people without power, investors like BlackRock and Vanguard argue.
A study in 2018 that was cited by the UN estimated that coal divestment — selling shares — could reduce emissions by up to 20%.
Barclays did not respond to requests for comment in time for publication. Citi declined to comment.