A report from the research team at MainStreet Partners found that many funds with Article 9 status under the Sustainable Financial Disclosure Regulations (SFDR) do not meet what it calls ‘the highest focus on sustainability’ expected.
The 2023 ESG Barometer report says that European ESG Template (EET) data suggests 90% of funds do not have, or do not disclose, environmental targets; with a third stating a minimum sustainable investment of 30% or less. The researchers behind the piece also found that there has been a ‘clear shift’ in funds moving from Article 6 to Article 8 status due to revised approaches around ESG.
It is also reported in the 2023 ESG Barometer that medium-to-large asset managers score higher in ESG ratings than their smaller counterparts. However, it also noted that the difference between the two has narrowed in the past year.
The report states: “In our opinion, the reason behind this could be found in the changing regulatory landscape on the ESG front, particularly since Mifid II suitability requirements came into force in August 2022, mandating distributors and asset managers to implement sustainability questionnaires, and label the products accordingly in order to incorporate customer preferences.”
Simone Gallo, managing director at MainStreet Partners, said: “The new European regulation on sustainable investments has created a revolution in the wealth and asset management industry and ESG conversations are now on the top of the agenda across boards and executive committees. But there is also significant confusion in the market about what constitutes a sustainable fund as well as how to avoid the risk of ‘greenwashing’ across a huge offering of new products marketed as ESG, impact, or sustainable.”
He added: “For these reasons we continue to see an increasing number of investors across Europe and Asia that either require, or desire, easy-to-understand and consistent ESG ratings that go beyond the simple bottom-up aggregation of ESG ratings of holdings to provide an independent holistic ESG due diligence.”