One in 7 ESG funds with higher emissions intensity

One in seven funds that are branded as sustainable has a carbon emissions intensity higher than the average across all investment funds, and no climate-labeled fund has a portfolio aligned with the Paris Agreement's goal, a study showed on Tuesday.

The analysis conducted by sustainability data and technology platform ESG Book is latest to question the reliability of funds marketing themselves on environmental, social and governance ESG grounds.

As trillions of dollars are looking for products that are more environmentally friendly and socially sustainable, the ESG and climate-labelled funds have gone up in recent years, prompting regulators to increase scrutiny of investment managers' claims.

If you are an investor in a fund, you can see your daily financial performance, but hardly anybody tells you if the fund is delivering on its climate targets? Among the 515 climate and ESG funds, 73 showed a greater emissions intensity ratio than the average recorded across the 36,000 funds ESG Book tracks, and 15 funds exceeded 400 tons of carbon dioxide equivalent per million dollars of revenue - more than twice as high as the wider average.

Klier, who was previously global head of sustainable finance at HSBC, said there was a need for a better labelling system and greater understanding of how some companies are closely managing how they perform on ESG metrics, but not improving their climate performance.

The analysis also found that 95 of the 95 climate funds ESG Books examined invested in fossil fuel and mining companies, including Shell, Exxon Mobil and BHP Group.

While such companies might have a place in climate transition funds, ESG Book said that including them in ''climate aware or '' climate care funds seemed to be in conflict with the definition of a climate fund. The landmark Paris accord of 2015 set a goal of limiting a rise in the world's average surface temperatures to well below 2 degrees Celsius and ideally below 1.5.