Sustainability means different things to different people. At its core, it should reflect a commitment to the future of our planet, our people and our economies. Which is why sustainability needs to apply to the very financial systems we rely on every day.
Unfortunately, for many sustainable passive funds, it may be little more than a label.
A recent report by Reclaim Finance exposed a troubling truth. Of the 430 passive funds marketed as sustainable in Europe, 70 percent are still investing in fossil fuel developers. That means these funds continue to finance companies actively expanding oil, gas, and coal production. These projects directly undermine efforts to limit global warming to 1.5°C.
Sadly, these are not footnotes in an otherwise clean portfolio. These are core holdings in funds that for many everyday investors, including climate-conscious individuals saving for retirement, have chosen precisely because they believe in sustainability. As a global citizen, it concerns me deeply when good intentions conceal harmful outcomes, with the potential to erode public trust.
Let’s be clear here, passive funds are more than an innocent bystander. When a passive fund tracks an index that includes fossil fuel developers, it allocates capital to those firms. They are not simply following the market, they are fueling it with investment dollars.
Some asset managers say they are powerless to change their indices. That is also not true. Passive investing is a series of choices. These include which index to track, which exclusions to apply, how to vote, and when to engage. Responsibility does not disappear just because the investment is automated.
I believe the solution starts with transparency. We need real, enforceable standards on what qualifies as a sustainable fund. These methodologies need to align with science, not just marketing, and sustainability-focused indices should draw clear red lines, especially around companies expanding fossil fuel operations.
Regulators are starting to move. In the UK, new anti-greenwashing rules make it harder for passive funds to call themselves sustainable without proper screening. In France and Belgium, sustainable investment labels now exclude fossil fuel developers entirely. These are welcome steps, and I look forward to seeing them adopted more widely across the globe and stringently enforced.
This is also where the United Nations must continue to play its role. As the world’s largest corporate sustainability initiative, the United Nations Global Compact (UN Global Compact) has set clear principles in the areas of human rights, labour, environment, and anti-corruption. These principles are not optional. They are the moral baseline for credible business. As a participant of the UN Global Compact, I see firsthand how it raises the standard and provides clarity to investors seeking alignment with the UN Sustainable Development Goals (SDGs).
At Ultima Markets, we do not claim to be perfect. But we take the work of responsible finance seriously. We started our own foundation to further our sustainability effort, and we recently launched our Sustainability Academy, to allow anyone anywhere to learn about sustainability from leading professors and climate scientists. We believe that knowledge has the power to bring action and change, so we’re doing what we can to facilitate it.
When people are educated about what sustainability is, what the challenges are, and what the solutions can be, it becomes a lens through which you discern opportunity and risk, and reframe what you view as value.
Too often in this industry, sustainability is treated as a cover, something you can add without changing the contents. That needs to end. It is not enough for funds to be labelled green if they bankroll the continued growth of fossil fuels, and it is certainly not enough for asset managers to shift blame to index providers while quietly profiting from the status quo.
As investors, we need to ask tougher questions. What does this fund actually hold? Are these companies aligned with a sustainable future? If they’re not, why are they in my portfolio?
This is not a call for divestment at all costs. This is a call for clarity, honesty, and alignment. Investors deserve to know what they are funding, and markets need to reward those who fund what truly supports our long term future. That is our true responsibility.
Article By Jean Philippe Mota, Board Advisor for Sustainability and Corporate Governance, Ultima Markets
