Is passive fund growth putting fossil fuel divestment in jeopardy? The growth of market-tracking passive funds threatens to be a huge stumbling block to the fossil fuel stock divestment movement — despite efforts from both environmental campaigners and even asset managers themselves, writes Billy Nauman in the Financial Times. Despite a significantly growing number of institutional investors committing to cutting fossil fuel stocks from their portfolios, soaring growth in passive investing means that fossil fuel companies can still see sizable inflows — as long as they retain their position in the right indices.

Asset managers are jumping on board with divestment, but fossil fuel companies are finding ways to lessen its impact: BlackRock, the world’s largest asset manager, said in January that it would reshape its investment strategy in response to the climate crisis, pledging to drop USD 500 mn of coal stocks from its actively managed funds. But until its customers choose to pick funds that exclude fossil fuels, BlackRock will retain a significant stake in every major oil company, Nauman writes. Fossil fuel companies appear well aware of the advantages that passive funds can offer, with oil firm Encana securing its inclusion in large US indices by relocating from Calgary to Denver in January.

Can anything be done to halt the trend? An initiative started by the New Zealand Superannuation Fund in 2017 saw it work with MSCI to create customized indices that weight companies according to their carbon emissions performance. Through this effort, some USD 610 mn has been moved from high carbon companies to lower-risk alternatives. And global fund manager State Street recently said its USD 3.1 tn passive investing arm would begin voting against company boards that don’t meet ESG standards. But with the purpose of passive investing being the avoidance of this kind of scrutiny on individual market winners and losers, it is difficult to see how the fossil fuel companies can be outmaneuvered without dropping the vehicle altogether, Nauman argues.

And how is Egypt’s most popular ETF doing from an environmental perspective? Not badly at all. The VanEck Vectors Egypt Index ETF, which has approximately USD 31 mn under management, has an A grade on the Fossil FreeFunds website, with 0% fossil fuel exposure.