Passive funds are now set to become last resort investors in UK-based fossil fuel companies. According to the left-wing think tank known as Common Wealth, the trend could result in stewardship “inertia” and threaten climate transition in Britain.
The think tank argued index-tracking passive funds should bolster stewardship activities to assist in supporting the transition to a fully decarbonised economy as they rise to become even more powerful owners of listed companies in the UK.
Although it will not be for a few years yet, the think tank stated that passive funds are now on track to surpass the position of actively managed funds in terms of ownership of the UK’s fossil fuel industry. However, the research institute commented that as a result, fundamental questions about the stewardship activities of passive funds had been raised.
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Common Wealth is now urging passive funds to make a greater investment in their stewardship teams, increasing transparency regarding voting policies and revealing the extent of all direct engagement conducted with investee companies.
The think tank claims that the spike in passively managed funds over the last 20 years, especially since the global financial crisis in 2008, has marked an important shift in investment allocation control and corporate governance.