Green money flows: Where the climate and capitalism meet!

Green money flows: Where the climate and capitalism meet!

In 2024, investments by banks and asset management companies in leading oil companies totaled over $33 billion. These companies are responsible for an alarming 18% of annual global greenhouse gas emissions. Despite growing pressure to combat climate change, these funds are flowing through funds marketed as “green” offered by major financial institutions such as JP Morgan, DWS/Deutsche Bank and BlackRock. This shows a major mismatch between publicly stated commitment to climate targets and actual investment in carbon-intensive industries, according to the report Voxeurop disclosed.

The Paris climate agreement sets the goal of aligning financial flows with low-emission development. Nevertheless, many asset management companies publicly support the agreement but continue to invest heavily in the fossil fuel industry. Particularly in the EU financial market, financial institutions must comply with the EU Sustainability-Related Disclosure Regulation (SFDR), which imposes comprehensive transparency requirements. Articles 8 and 9 of this Regulation concern the promotion of environmental and social features and sustainable investments, such as BaFin describes.

Financial impact and the greenwashing problem

Despite existing policies, US and UK financial institutions account for 46% of total fossil fuel investment, equivalent to US$9.1 billion and US$6.6 billion. Of particular concern is that the ten largest financial institutions that own shares in fossil fuel companies collectively manage $12.6 billion. These companies are responsible for 80% of the carbon emissions of the publicly traded fossil fuel industry.

New guidelines from the European Securities and Markets Authority (ESMA) on greenwashing ban funds that make significant investments in fossil fuels from labeling themselves as “green” or “sustainable”. The deadline for applying these new guidelines is May 21, 2025, with some asset management firms already renaming funds to comply with the requirements.

Transparency and investment patterns under the SFDR

According to the requirements of the SFDR, financial market participants must disclose various aspects. In particular, Article 4 regulates the PAI Statement, which describes whether and how adverse effects of investments on sustainability factors are taken into account. Disclosure of the carbon footprint is required if these factors are taken into account in the decision-making process. If not, the institutions must provide reasons, in accordance with the “comply or explain” principle. Additional articles cover, among other things, the inclusion of sustainability risks and the specific requirements for the disclosure of ecological and social characteristics.

BaFin monitors compliance with these obligations on the financial market and has already presented appropriate solutions to existing problems. Analysts doubt the influence that investors can have on companies' climate goals, while many oil and gas companies still do not present business plans that are in line with international climate goals.

In this complex situation, audience guidance regarding asset management companies' actual and stated investment strategies remains key. More pressure will be needed on companies to achieve real change towards sustainable financing strategies.