(Bloomberg) -- Asset managers will no longer be able to exclude all passively invested funds when estimating their carbon footprint, if they want their emissions goals verified by the United Nations-backed Science Based Targets initiative.

SBTi, which already sets global standards for non-financial firms, is now working on an equivalent framework for the financial industry. The goal is to expose misleading net-zero emissions targets made by investment firms and banks.

Some asset managers appear to be using their passive operations as a “kind of a fig leaf,” Nate Aden, finance sector lead at SBTi, said in an interview. “We need the entire company or financial institution to be aligned, otherwise we’re never going to achieve climate stabilization.”

Many of the world’s biggest money managers don’t currently include funds they define as passive in their emissions estimates. An analysis of 30 major investment firms showed that none applied fossil-fuel restrictions to all their index-tracking funds, according to nonprofit Reclaim Finance. Of those, 25 are signatories to the Glasgow Financial Alliance for Net Zero, including Vanguard Group Inc., BlackRock Inc. and State Street Corp. (Michael Bloomberg, founder of Bloomberg News parent Bloomberg LP, is co-chair of GFANZ).

Read more: Wall Street Giants to Show Their Climate Cards: Green Insight

At the COP26 climate summit in Scotland last year, it was announced that GFANZ members representing $130 trillion in assets had committed to net-zero financed emissions. The milestone was cheered by the finance industry, but greeted with skepticism by climate activists, who quickly demanded that more stringent guidelines and controls be put in place. 

The International Energy Agency has made clear that in order for the world to have a chance of keeping the increase in temperatures to 1.5 degrees Celsius, there should be no investment in new fossil-fuel supply projects. But the study by Reclaim Finance showed that some of the world’s biggest asset managers don’t even apply their exclusion policies for coal -- the dirtiest fossil fuel of them all -- across their passive portfolios.

“If institutions that are part of GFANZ continue investing in coal developers, I’d come to the conclusion that the initiative is useless,” said Heffa Schuecking, director of German nonprofit Urgewald. “Excluding coal developers should be a mandatory first step.”

SBTi already looks at short-term emissions goals set by the financial industry, and the framework it’s working on now will incorporate long-term targets. As of Friday, 149 financial firms had publicly committed to setting science based targets, and 23 of those had actually completed the process, according to SBTi’s website. There are roughly 450 signatories to GFANZ.

Read more: Active Versus Passive? Why It’s Not So Simple Anymore: QuickTake

Ever since Burton Malkiel published “A Random Walk Down Wall Street” roughly half a century ago, the idea that active management left an investor better off has been up for debate. The giants of Wall Street latched on to the idea by developing index funds, which allowed investors to track a benchmark at much lower fees than active managers would charge. In the U.S., more than half of publicly traded assets in equity funds are now in passive strategies.

Over time, the lines between active and passive have become blurred, with many asset managers now offering a variety of hybrid strategies. SBTi said asset managers trying to pass off as passive a strategy that entails any element of active decision making will be expected to include those funds in emissions estimates.

“The broad get-out-of-jail-free card of passive does not fly with us,” Aden said.

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