JP Morgan’s ‘sustainable’ funds invested £200m in mining giant Glencore | Environment

One of the world’s biggest banks, JP Morgan, has promoted ­environmental and “sustainable” funds to customers which have invested more than £200m in the mining giant Glencore, it can be revealed.

Ethical investing has become big business for JP Morgan and other financial giants, with worldwide “sustainable” investing expected to surpass $40tn by 2030. But the industry now faces scrutiny over the rules around investments focusing on environmental, social and governance (ESG) issues.

Several of JP Morgan’s “sustainable” funds are investing in the London-listed commodity trader Glencore, which is under fire for its coal operations in South Africa, an investigation by the Bureau of Investigative Journalism, the news website Voxeurop and the Daily Maverick, an online South African news publication, has revealed.

JP Morgan’s asset management arm has more than 500 funds promoted as environmental or sustainable investments, ranging from a climate change solutions fund to a global healthcare fund. Under current rules, some of these may still hold investments in firms criticised for environmentally damaging practices.

For many of its funds that are promoted as sustainable, JP Morgan specifies that at least 51% of investments must have positive environmental and/or social characteristics. The remaining 49% can be invested without such restrictions.

Jakob Thomä, chief executive of ­climate thinktank Theia Finance Labs, said: “The overwhelming majority of retail investors, in my view, would feel misled if they knew that was the ­criteria for labelling something as a sustainable fund.”

He said some sustainable funds may be breaking EU law, which says anything that “deceives or is likely to deceive the average consumer” is misleading commercial practice.

JP Morgan’s sustainable funds also exclude companies that make more than 20% of revenues from thermal coal extraction. Despite being one of the world’s biggest coal companies, Glencore slips under this threshold in terms of revenues. In terms of actual profit, however, coal mining accounts for nearly half.

The investments have angered campaigners who have highlighted environmental breaches in Glencore’s operation in South Africa’s coal belt. Glencore runs three mining complexes around the mining town of Phola, Mpumalanga, which is about 70 miles east of Johannesburg. According to a recent South African government report, obtained via a freedom of information request, one of those has been breaking environmental laws since 2017.

The company’s Tweefontein coalmine has been accused by the South African water and sanitation department of several breaches including seriously contaminating a local river, storing hazardous waste in open containers and failing to fix broken walls at a sewage facility.

Residents at Phola say they don’t trust the local water supply. Daisy Tshabangu, 52, moved to Phola because her family worked at the coal-fired power station that looms on the horizon. “Most of the people, when they do drink this water they get stomach aches,” she said.

Phola residents say they feel abandoned by the companies whose mines dominate the landscape. Unemployment is high and infrastructure is crumbling.

“We don’t benefit from the mines,” said Tshabangu. “There’s a lot we don’t have but we are surrounded by mines. So to us, it seems like we are being sidelined as a community.”

Glencore says that its water treatment plant supplies clean water to Phola as part of its “commitment to sustainable development”. It says it is not directly responsible for the overall supply of water and cannot comment on claims about water quality. It says it has had no complaints via a grievance procedure regarding the supply of water.

Despite repeated requests to clean up its operations, the Tweefontein mine was still in breach of multiple environmental laws as recently as November 2023, an inspection report by the South African water and sanitation department reveals. Campaigners question why the company’s licence has not been revoked.

“Our regulators are often compromised and give in to the pressure of the coal mining industry. [They] do not have the political will to enforce our laws,” said Mariette Liefferink, chief executive of the Federation for a Sustainable Environment, a local campaign group.

Angered that finance promoted as sustainable is supporting Glencore, Liefferink wrote to the former Labour MP Chuka Umunna in November last year about the environmental risk, ecological degradation and pollution associated with JP Morgan’s investments in Glencore. Umunna is now head of sustainable solutions and head of green economy for investment banking at JP Morgan. However, the Observer understands that the former shadow secretary of state for business, who did not respond to the letter, is involved only in the activities of the investment bank, and is not involved in and does not have oversight over the sustainable policies of the asset management arm.

Liefferink urged the bank to review its investments in Glencore due to the company’s alleged breaking of environmental laws, as well as the pollution, wildlife damage and environmental risk its activities were causing. Liefferink’s correspondence highlighted two JP Morgan funds with ESG in their name, both of which had millions of pounds invested in Glencore.

After a rapid rise in popularity, ESG investing is the subject of increasing scrutiny around the world. Regulators are trying to settle on what it means, and create labels that are easy for investors to understand.

The Mpumalanga mines form a small part of Glencore’s global operations. It is the world’s fifth biggest coal miner, selling more than 100m tonnes in 2023 – including from the Cerrejón mine in Colombia where there have been allegations of human rights abuses and environmental destruction.

Glencore says it is committed to responsible engagement and the wellbeing of all workers, and that mitigating negative impacts of its mines is imperative to building trust with local communities, which it maintains through ethical and responsible business practices. The company said the water supply in Phola is a municipal service, but that it contributes to a reservoir that also receives water from other sources. It said it monitors the quality of the water provided by its treatment plant on a weekly basis to ensure it is suitable for consumption.

The company said it has been taking action in response to Department of Water and Sanitation (DWS) inspections since 2017 and that incidents identified in the 2023 audit have been addressed.

“Our industrial assets are closely linked to the communities and regions where they operate. We aim to avoid harm to people from our activities, respect human rights, and establish and maintain trusting relationships with stakeholders, through ethical and responsible business practices,” the company said.

JP Morgan declined to comment.

This investigation was supported by the Bertha Challenge fellowship; Stefano Valentino is a 2024 Bertha Challenge Fellow. Additional reporting by Ed Stoddard