The Great Green Investment Investigation: Methodology

Just how green are Europe’s Dark Green funds? To answer that question, Follow the Money and Investico compiled a list of all investment funds trading within Europe that claim to be Article 9. This yielded a total of 1141 funds.

We then downloaded the complete portfolios of these funds from Bloomberg, the world’s most comprehensive financial database (reference date: 30 June 2022). We manually looked up and added the portfolios of a few funds that were not listed in Bloomberg. In total, we found the portfolios of 838 funds, which is 73 per cent of all Article 9 funds. On our reference date, these funds had active investments worth 619 billion euros.

An investment fund typically participates – via shares and/or bonds – in a few dozen to a few hundred companies. Thus, the database that we built contains thousands of investments, which we subsequently analysed on their sustainability.

Fortunately, we were able to draw on the expertise of others for this task. For example, the German non-profit organisation Urgewald has been analysing the coal industry for years. Coal is the most polluting fossil fuel: if you do not want to invest in climate change, you should steer clear of companies operating in the coal chain. Urgewald takes into account the entire chain: companies that extract, transport and burn coal.

Urgewald uses threshold criteria. A company is listed on the Global Coal Exit List (GCEL) if it meets one of these criteria:

  1. it derives 20 per cent or more of its revenue or its energy production from coal;
  2. it extracts 10 million tonnes or more of coal annually or has 5 gigawatts or more of coal-fired power plants;
  3. it is developing new coal mines, new coal plants, or other new coal infrastructure. 

The GCEL contains 1064 companies and over 1800 subsidiaries that operate along the thermal coal value chain. While nearly half of all the companies plan to further expand their coal business, Urgewald has identified only five companies with coal exit strategies that could be considered Paris-aligned. More information on Urgewald’s coal exit list methodology can be found here.

Urgewald compiled a similar list of oil and gas companies, with one exception: it only looks at oil and gas extraction and exploration (upstream) and new oil and gas infrastructure projects (midstream expansion). Operations that use or burn oil or gas (downstream) are excluded, as the scope of use for oil and gas is much wider than that for coal and is, therefore, more difficult to assess. The methodology of Urgewald’s Global Oil & Gas Exit List (GOGEL) can be found here.

Thanks to Urgewald, we thus had a long list of companies operating in the fossil fuel chain that do not have a credible climate strategy. Using Bloomberg’s sector classification, we added a list of companies in the aviation industry, because in this sector, growth and a credible climate strategy simply don’t mix.

And lastly, bonds: fossil fuel companies too can issue sustainable bonds to raise money on the capital market for building, for example, a wind farm. To avoid classifying these bonds as ‘grey’, we used the expertise of the Climate Bonds Initiative (CBI), an international financial research firm based in London. CBI identifies all bonds that label themselves as ‘green’ and analyses whether that is justified. If a green bond from a ‘grey’ company has passed CBI’s balloting, it is also categorised as green in our database. Information on CBI’s methodology can be found here.

This allowed us to compile a list of equity and bond investments that could be classified as ‘grey’. We then matched these investments with our database comprising thousands of investments from the portfolios of Article 9 funds.

Please note that our criterion for an ‘incorrect’ investment is very specific: we only looked at investments that contribute to global warming. However, Article 9 funds use a much broader concept of sustainability: they also promise not to cause any significant social or environmental damage. We disregarded this type of unsustainable behaviour. And yet a large chunk of European Article 9 funds failed the test.