Research found that on average, 13.6% of newly issued bonds purchased by U.S. corporate bond ETFs between 2015 and 2020 were issued by fossil fuel companies.
In order to conduct the research, scientists at the University of Oxford developed a metric – the primary market carbon exposure or PMCE – to calculate the proportion of fossil fuel-related securities that were purchased in market transactions. primary by ETFs.
The research, which looked at 35 ETFs with at least $ 500 million in assets under management each and $ 307 billion in assets under management combined, found that 6.8% to 29.1% of bonds purchased by these ETFs in primary markets were debts of fossil fuel companies.
The fund’s level of exposure to fossil fuels also depended on the type of fixed-income assets the funds bought, according to the research. Average exposure to fossil fuel sectors obtained through primary high yield ETF investments was 19.8%, while average exposure to investment grade bonds was 12.4%.
The researchers also found that, through its asset purchase programs, the Federal Reserve bought $ 8.8 billion in 16 ETFs, of which 13 were reviewed in the research. The move reduced credit risk, improved market confidence, and supported new issuance, but it also drove the Fed’s PMCE to 13% in 2020.
“Climate-conscious financial institutions need to be much better at tracking primary market transactions that directly support fossil fuel companies. It is when new bonds or stocks are issued in primary markets and purchased that capital actually shifts from the financial system to the real economy, “Ben Caldecott, research co-author and director of the Oxford Sustainable Finance program, a said in a statement. “Financial institutions need to know how they are contributing to capital flows that could help or hinder the fight against climate change.”