A new report has revealed a disconnect between major investment funds and global efforts to reduce rising temperatures and extreme weather. Despite widespread pledges to support a cleaner energy future, the world's largest asset managers are still pouring money into dirty energy sources, like coal and gas, at nearly twice the rate of greener alternatives.
What's happening?
The study, released by BloombergNEF, analyzed the investment behavior of nearly 70,000 funds globally and found that current practices are still pushing the world further off course from efforts to reduce heat-trapping pollution. According to the study, for every $10 million of capital expenditure enabled by asset managers that went to dirty fuel production, just $4.8 million supported clean energy — a 0.48-to-one ratio.
In other words, investment funds are still heavily tilted toward high-carbon energy, undermining global efforts to reduce air pollution and curb extreme heat. The results "show that investment products and investors are far away from being aligned to net zero," BNEF analysts, led by Ryan Loughead, wrote in a report.
Why is financial investment in clean energy important?
The financial sector plays a crucial role in either accelerating or stalling progress toward cleaner air and healthier communities. Right now, the majority of fund-enabled capital continues to support energy sources that increase air pollution, drive higher global temperatures, and make severe weather events more common and more costly.
Vulnerable populations like children and seniors, who are already disproportionately affected by respiratory and cardiovascular conditions linked to pollution, are likely to suffer the most. And while many asset managers have made public commitments to align with international pollution-reduction targets, this new research shows that most are still falling far short.
"If we want a net zero energy system — and for low-carbon technologies to displace what provides our energy today — we'll need to invest at a much larger scale in the low-carbon economy," Loughead said in an interview. "Investors have a significant role to play in that story as facilitators of capital."
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What can be done about it?
Stronger government-backed policies can help make clean energy more attractive to large funds by offering better incentives and removing financial barriers. BloombergNEF's findings also highlight a need for updated index structures, so fund managers aren't forced to follow outdated benchmarks that favor dirty fuels. For example, direct indexing, explained here by Morgan Stanley, can circumvent polluting industries while also saving investors on taxes.
Investors can take action by choosing clean economy stocks, pressuring their retirement plan providers to offer eco-conscious options, and supporting legislation that pushes for cleaner infrastructure and tighter pollution rules. GreenPortfolio also offers a free service to help retail investors put their money toward green industries.
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