Who Owns the World’s Fossil Fuels?
A forensic look at the shareholders of listed fossil fuel companiesmore
Please use this link only when referencing this content. Updated January 4th 2019.
See media coverage in the Financial Times, LesEchos (France), World Coal, Novethic, Axios, Citywire Selector, Insurance Asset Risk.
If combusted, the world’s remaining proven fossil fuel reserves will consume over four times the budget for staying below 1.5C, based on the IPCC's October 2018 Special Report on Global Warming. Attention has now turned to the shareholders of listed fossil fuel companies and the potential influence they wield over the management of these physical assets.
The research finds the world's 15 largest asset manager groups (with a combined $40 trillion in capital market assets) have increased the holdings of thermal coal reserves in their funds by more than 20% since the Paris Agreement. While the reasons behind this increase are not clear, it is evident that there has not been a strategic effort by most of the largest asset managers to shift away from coal. These trends may driven by passive fund management based on indices provided by financial data companies such as MSCI, S&P and FTSE Russell. Some key thermal coal players like Peabody Energy and Arch Coal of the US have re-entered these indices in the last two years.
This research considers 300 publicly listed companies who control the largest amounts of fossil fuel (thermal coal, oil and gas) reserves and production. It links these assets to the world’s largest 4,000 asset owners, 4,000 asset managers and almost 60,000 listed funds. The research kicks off a multi-year FinanceMap project by InfluenceMap to generate and make public climate metrics on key portfolios in the investment management sector.
This work is made possible with the support of the KR Foundation.
The Fossil Fuel Industry
The largest publicly listed fossil fuel producers on the planetmore
This research looks at the approximately 300 publicly listed companies who control the largest quantities of fossil fuel reserves and production. Together, they account for more than 98% of all fossil fuel reserves within listed companies and represent roughly $5 tn in combined market capitalization (as of Oct 2018 and noting not all this value is in the fossil fuel reserves). This includes large conglomerates like Japan's Itochu for whom fossil fuel production is only a minor business but on account of their size still make them substantial players.
This research defines them as the largest based on an aggregation of their sales, market capitalization but mostly the amount of physical reserves and production they control. Thus, they are important to investors looking to utilize their power as shareholders to address climate change. All data on the companies is based on the latest financial and annual report disclosures (in most cases, as of mid-2018) and can be accessed by the Fossil Fuel Companies button below.
It is noted that the majority of proven reserves of thermal coal, oil and gas (as taken from 2018 BP energy data and based on ‘geological and engineering data’) are controlled by non-public entities, such as Saudi Aramco and governments directly. This research excludes metallurgical coal (14% of global coal production in 2017 according to the IEA).
The map shows the location of thermal coal, oil & gas reserves in listed companies according to where these companies are registered. All publicly listed company reserves data is taken from the latest company financial disclosures.
Fossil Fuels and Carbon Budgets
Latest IPCC estimates warn of the need to drastically reduce coalmore
This chart compares the potential carbon emissions from the proven reserves of oil, gas and thermal coal held by public vs. non-public fossil fuel companies, should these reserves all be combusted for energy. Also noted is the value the market currently places on the reserves owned by publicly listed companies (see the FAQs for how this is computed).
The potential emissions of the thermal coal reserves controlled by publicly listed companies account for nearly all of the remaining carbon budget to stay within 1.5C based on the IPCC's Special Report released October 2018. The report also calls for drastic cuts in coal combustion for power.
The value of these thermal coal reserves represents only a very small fraction (just over 0.25%) of the global equities market.
With no significant government regulation in place to restrict the extraction or use of fossil fuels attention has turned to the potential influence that shareholder power has over these listed companies’ activities. Several strategies such as divestment and engagement have emerged and are being deployed by both asset owners and the asset management sector that serves them.
Fossil Fuels and Finance
Individuals are the ultimate beneficial owners of physical fossil fuel assetsmore
Ultimately, all assets are beneficially owned by individuals, rather than institutions, but these individuals are often represented by range of intermediaries. The individuals are shown on the far left and include taxpayers, pension and insurance holders, small investors, savers and high net worth individuals.
The progression from left to right shows the complex finance chain between the individual owner-beneficiaries and physical assets of the real economy. A goal of campaigns like the fossil divestment movement is to empower individuals in the left-hand column to impact the fossil fuel value chain and its physical assets through this ownership chain.
Individual owners entrust their investments to asset owners such as pension funds, endowments, insurance companies and even national governments (who own assets through state pensions, sovereign wealth and other funds). Asset owners in turn rely on the asset manager sector for a variety of investment services. An increasingly important part of this landscape is the listed fund sector. The database used in this research is derived from the Thomson Reuters Lipper financial database, which states "Lipper includes mutual funds, closed-end funds, ETFs, hedge funds, retirement and pension funds, and insurance products."
This research tracks the largest 4,000 asset owners and 4,000 asset managers and close to 60,000 funds.
Equity Ownership Data
The methodology, data sources and assumptionsmore
This research details 4,000 of the world's largest asset owners and 4,000 of the world’s largest asset management firms, all of them legal entities operating in particular geographies (e.g. BlackRock UK Ltd). It links them to larger asset management groups where applicable (e.g. BlackRock UK Ltd is linked to BlackRock) and also tracks any listed funds they may operate (e.g. BlackRock UK Ltd may operate listed funds under the iShares brand within the UK). Close to 60,000 listed funds are tracked in this way.
It is recognized there is some overlap between the terms "asset owner" and "asset manager" in that many asset owners (such as insurance companies AXA, Allianz and pension fund CaLPERS) also manage assets on behalf of other asset owners and hence are also asset managers. In defining the asset manager groups, all majority owned companies within a particular group are aggregated. However, the FinanceMap database tracks each company within an asset management group separately.
The portfolio contents of listed funds can be determined to a high degree owing to regulatory disclosure requirements, while the full portfolio contents of asset managers and asset manager groups can be determined to a lesser extent. It should be noted that all such financial data is necessarily out of date in that it relies on past disclosures, generally made up to several months prior to the date of data taken.
Further details on the tracking of equity ownership is contained in the Methodology and FAQs.
Asset Owners and Fossil Fuels
How pension and wealth funds are dealing with fossil fuelsmore
As the ownership chain in the preceding section shows, institutional asset owners such as pension funds, government funds and endowments are effectively one step away from citizen beneficiaries like savers, students, pension payers and taxpayers. The fact that many such funds are large enough to own significant portions of key listed companies has made them a target for campaigners wanting to deploy shareholder power through the ownership chain.
Many asset owners have responded to the fossil fuel divestment campaign movement and have a policy on ownership of fossil fuel-related assets. A leading divestment website, gofossilfree.org notes that 893 financial institutions responsible for $6.15 trillion of assets have made some kind of divestment pledge.
This research tracked the 10 largest asset owners who appear to have sold all direct holdings of thermal coal producers in the last two years, with combined assets of $1.4 trillion. The list is headed by the wealth funds of oil states Kuwait and Qatar, and includes IBM's pension fund and the Ontario Teachers’ Pension Plan. None of these 10 asset owners appear to have any publicly disclosed policy on thermal coal holdings.
Engaging with companies remaining in the portfolio on the management of their climate-risk assets is also a common strategy. Of note is the Climate Action 100+ initiative (launched at the end of 2017), which commits key asset owners with a total of $30 trillion in AUM to engage with 100 of the world's largest companies on climate change issues. Leading coal producers like China Shenhua Energy and Coal India are on the list, along with the oil and gas majors.
Asset Managers and Fossil Fuels
A focus on the largest asset manager groupsmore
As of June 2018, the 15 largest asset manager groups in the world have a combined $40 trillion in assets of all kinds under management on behalf of asset owners, from individual investors to the world’s largest pension funds. This constitutes over 20% of all global capital market assets. At the head of the list are giant US firms BlackRock and Vanguard, with a combined $11 trillion of AUM.
This chart compares the aggregate sum of fossil fuel reserves held by the 15 largest asset managers through the companies in their portfolios. It is expressed in Gt of CO2 emissions equivalent to allow comparison of thermal coal with oil/gas reserves from a climate perspective. These quantities are independent of share price variation and thus more accurately track shifts in the portfolios of these assets.
US giant BlackRock leads in absolute terms, with oil, gas and thermal coal reserves controlled by the fossil fuel producers it holds representing an aggregated 9.5 Gt of CO2 emissions equivalent with just under half these emissions in thermal coal. This figure of 9.5 Gt is equivalent to 30% of 2017 total global energy related carbon emissions for 2017, according to the International Energy Agency.
This research recognizes that the asset management sector holds shares in listed companies on behalf of institutional and individual asset owners and hence may not have final decision-making power in terms of allocation of fossil fuel assets. However given its scale and resources the sector remains hugely influential in asset allocation trends within global markets. In light of the IPCC’s recommendations on coal power this research now focuses on the thermal coal holdings of listed funds run by the world's largest asset managers.
Thermal Coal Intensity
A new metric to allow the comparison of coal holdingsmore
This research introduces the thermal coal intensity (TCI) metric, defined as the tonnage of thermal coal held per $mn (assets under management, AUM), which allows for like-for-like comparison. This metric can be applied both at an individual fund level and across multiple portfolios of funds managed by the same asset management group. The TCI factors of the ten largest operators of funds (from the previous 15 largest groups), are considered here. All manage over $250bn of listed funds as of 06/2018, according to data from Thomson Reuters' Lipper database, noting the broad definition of listed funds in use in this research.
Among the ten asset management groups with the largest aggregate fund AUM, BlackRock holds the most coal intensive portfolios. It scores a TCI of 571 in its $2.3 tn of funds - 50% higher than the benchmark average for the world's 60,000 largest funds with $36 tn total AUM tracked by the research. However, there are key differences between BlackRock’s passively and actively managed funds. The group’s passively managed funds show a thermal coal intensity in 2018 of 680 tns/$mn AUM, while its actively managed funds show a much lower TCI of about 300 tons/$mn AUM, well below the global fund benchmark.
German fund manager Allianz, which introduced a thermal coal divestment policy just before the Paris Agreement in 2015, registers the lowest TCI with just 80 tons/$mn AUM or 80% lower than the benchmark, likely indicative of a proactive push to go underweight in thermal coal post-Paris.
Focus on Individual Funds
A look at selected ETFs through the lens of thermal coalmore
On the individual fund-level, the following chart provides a comparison of the TCI factors of representative exchange-traded funds (ETFs) in three categories: mainstream, climate, and coal funds.
US asset manager State Street sells two funds marketed as fossil-free, constructed using MSCI indices, with TCI figures of over 200 tons/$mn AUM. These funds are actually 100 times as thermal coal intense as State Street's flagship $250 bn SPY ETF which is based on the S&P 500 index of the largest US companies. The two funds (SPDR MSCI EAFE Fossil Fuel Reserves Free ETF and SPDR MSCI Emerging Markets Fossil Fuel Reserves Free ETF) worth a combined $100m actually contain significant fossil fuel reserves through holdings of companies including Wesfarmers, RWE and Vale.
The MSCI indices on which the State Street funds are based are described as a “benchmark for investors who aim to eliminate fossil fuel reserves exposure from their investments due to concerns about the contribution of these reserves to climate change.”
Specialist ETF provider VanEck, a $47 billion US asset manager, offers a fund with most of its assets in thermal coal to score a record-high TCI factor of over 370,000.
Progress Since the Paris Agreement
Changes in coal reserves held by the largest fund managersmore
This research tracked the variation in the thermal coal reserves held by the funds managed by the same ten asset manager groups from 03/2016 to 06/2018 – that is, the approximately two years since the Paris Agreement. The changes are adjusted for fund inflows/outflows - see here for the methodology.
While the reasons behind this 20% increase are not entirely clear, the total thermal coal reserves controlled by the listed companies considered in this research increased by only 6% in the period following the Paris Agreement. This 6% is largely accounted for by two US thermal coal companies – Peabody Energy and Arch Coal – which re-entered the publicly listed company universe in the same period as they emerged from bankruptcy.
It is also likely that passive management of funds tracking indices has played a major role. For example, both Peabody Energy and Arch Coal rejoined financial indices such as the Russell 2000 after re-listing. Both are top global holders of thermal coal among listed companies (with combined reserves of over 8 billion tons, or 20 Gt CO2 equivalent emissions potential).
Focus on Key Asset Managers
A detailed look at BlackRock, Vanguard, and AXAmore
The key thermal coal holdings of the two asset management groups with the largest aggregate fund AUM, BlackRock and Vanguard, as well as AXA, the group which showed the largest increase in its funds' thermal coal holdings between 2016 and 2018 are profiled.
Though BlackRock leads the asset management groups in thermal coal intensity, with 571 tons per $mn AUM, its holdings of thermal coal reserves are virtually unchanged between 2016 and 2018. This is partly due to differences in the behaviour of the groups passively and actively managed funds. While BlackRock’s fully passive funds have decreased their thermal coal holdings, this has been largely offset by increases in thermal coal holdings among the group’s actively managed funds, as well as among its increasingly popular Optimized index-tracking funds, which include numerous iShares ETFs.
French giant AXA, which like its German peer Allianz has a policy on thermal coal, actually more than doubled its thermal coal holdings within its $350 bn portfolio of listed funds in the time period 2016-18, adjusted for inflows. Most of this increase is accounted for by AXA’s majority-owned subsidiary AllianceBernstein acquiring stakes in US coal companies Peabody Energy and Arch Coal during the time period.
Climate Funds and Fossil Fuels
Would buyers of climate funds expect to find thermal coal in the portfolio?more
The marketing of climate-themed funds has been in progress for at least a decade, catering to individual and institutional investors wishing to adopt a climate-sensitive investment strategy.
This research considered over 80 listed funds marketed under a climate related theme using terminology like 'clean energy' and 'low carbon', and representing a total of $14 billion in assets. While these funds constitute a relatively minor segment of the listed fund market, their target audience represents an important demographic of individuals wanting to deploy sustainable strategies in their finances.
Close to 20% of these funds contain significant fossil fuel reserves via their holdings. Two State Street funds linked to MSCI fossil free indices actually contain thermal coal, oil and gas reserves held by such companies as Australia's Westfarmers, Brazil's Vale and RWE of Germany. Both of these funds have thermal coal intensity values over 200 tns/$mn AUM. These funds are actually 100 times as thermal coal intense as State Street's flagship $250 billion SPY ETF, which is based on the S&P 500 index of the largest US companies.
Both index providers such as MSCI and S&P and the asset managers that use them to market climate themed funds are likely to be more carefully scrutinized on these funds and fossil fuel reserves contained within them in light of the IPCC’s latest statements on thermal coal.