(Bloomberg) -- More than two-thirds of passive funds marketed as sustainable are helping finance growth in the fossil-fuel industry, a trajectory that the International Energy Agency has said is incompatible with limiting global warming to the critical threshold of 1.5C.

Of 430 sustainable passive funds run by five major asset managers in Europe and the US, 70% “were exposed to companies developing new fossil-fuel projects,” according to a fresh study published on Wednesday by Reclaim Finance.

“These investments are fueling climate change,” the Paris-based climate nonprofit said. 

The study, which looks at passive funds sold by BlackRock Inc., UBS Group AG, Amundi SA, Deutsche Bank AG unit DWS Group, and Legal & General Investment Management, is based on raw data from market researcher Morningstar Inc. and covers a total of almost $2.7 trillion in assets. The analysis zeroed in on exposures to companies that are still expending capital on new fossil-fuel supply projects.

Who’s Doing the Financing:

Note: The table shows the percentage of passive ESG funds reviewed that are exposed to fossil fuel expansion. Source: Reclaim Finance/Morningstar

The challenge for passively run funds tracking benchmarks like the S&P 500 is that they’re automatically exposed to stocks including Exxon Mobil Corp. and Chevron Corp., because the companies are part of the index. And selling those shares would mean the funds’ performance would no longer mimic the index.

Spokespeople for BlackRock, Amundi and LGIM declined to comment. A spokesperson for DWS said the asset manager’s goal is to reconcile its fiduciary duties and net zero commitment “as closely as possible,” given the complexities entailed. UBS said it was looking into providing a comment.

“Even asset managers which claim to have climate policies are part of the problem as most don’t apply their policies to passive funds,” Lara Cuvelier, sustainable investment campaigned at Reclaim Finance, said in a statement. “It is time for institutional investors and regulators to wake up and take action to stop these misleading claims.”

Reclaim Finance also called on asset owners to put pressure in investment managers to live up to their net zero commitments. 

Read More: World’s Biggest ESG Fund Class Adds Oil and Cuts Green Exposure

Some regulators are cracking down harder than others. Late last year, France said it will only let funds use a national environmental, social and governance label if they blacklist fossil-fuel companies that are still expanding productions. The label, known as SRI, has the potential to trigger about €7 billion ($7.6 billion) in divestments, Morningstar estimated in November.

 

(Updates to add percentage of funds exposed to fossil fuel expansion in table.)

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