You have had a front-row seat on YourSurvivalGuy.com to the ESG investing trend, where you invest, and they win. Now, after years of money managers rebranding their high-fee funds as “ESG” to get in on the action, regulators are beginning to step in and investigate. Frances Schwartzkopff reports in Bloomberg:
Asset managers have dramatically reduced the number of new ESG funds they’re rolling out, as a tougher regulatory environment makes it harder to make claims of environmental, social and governance investing.
Reclassifications that add an ESG element to conventional funds are down 84% compared with a year ago, according to data complied by Jefferies. New ESG funds built from scratch fell 60% over the same period. Overall, the data show that the decline was most pronounced in Europe and marks the first time that reclassifying old products hasn’t led ESG fund growth.
“Increased regulatory scrutiny and enforcement in this market is changing behavior,” analysts at Jefferies said in the report.
Regulators in the EU, UK and US are investigating ESG funds amid growing concerns that asset managers keen to sell products are promising more than they can deliver. To meet demand, asset managers have tended to rename existing products rather than build new ones. That’s raised questions about the ESG credentials of the funds, and fed concerns of widespread greenwashing.
A recent analysis by PwC showed that of 8,017 so-called Article 8 funds — an EU designation that requires a product to “promote” sustainability — only 989 were new at the end of the second quarter. The rest were reclassifications of existing funds. A similar analysis of 1,061 Article 9 funds — whereby a product needs to have sustainability as its “objective” — showed that only 286 were new.
In Europe, a review over the summer indicated that asset managers may have to downgrade hundreds of ESG funds in the coming months. The European Sustainable Investment Forum, whose members represent about $20 trillion in combined assets, has warned that “a significant proportion classified as Article 9 are far short” of meeting EU requirements.
In Sweden, a probe of Article 9 products last month found “many cases” in which managers failed to document their claims. The Stockholm-based regulator will meet with industry representatives to discuss its findings, and has warned that it will act to stamp out false ESG labeling.
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