New EU labels on sustainability may not be as robust as previously thought – with new analysis suggesting around a quarter of ‘Article 8’ funds were a ‘greenwashing risk’.
Analysis of more than 7,700 funds by MainStreet Partners’ fund research team found that there had been a 20 per cent increase in the number of Article 8 funds over the past year, and a 24 per cent decrease in Article 6 funds.
Under EU fund labelling rules Article 8 funds should promote environmental or social characteristics and have good governance practices. Article 6 funds no not have to have any sustainable criteria.
However, based on MainStreet’s analysis of fund managers’ sustainability framework and practices, almost a quarter (24 per cent) of these Article 8 funds were deemed a ‘greenwashing risk’. This is a four percentage point increase in the number of Article 8 funds deemed a greenwashing risk the year before.
According to MainStreet Partners’ 2024 ESG barometer, strategies with the terms’sustainable’ (684) and ‘ESG’ (631) were the most common used by asset managers. The sustainable term was more likely to be found in active funds, whereas ‘ESG’ was more commonly used in passive funds and ETFs.
MainStreet Partners managing director Neill Blanks says: “2023 was a challenging year for asset managers on many fronts, including responding to regulatory changes in sustainable investing, such as the FCA’s recently released Sustainable Disclosure Requirements (SDR).
“We introduced an SDR synopsis in this year’s ESG Barometer, covering the key implications for asset managers, such as marketing, use of data, type of fund, being compliant in time to gain the desired fund label.
“In helping asset managers to anticipate the needs of investors, we urge them to look beyond company operational sustainability to understand how companies play into global ecosystems. This can provide clarity on supply chain resilience or exposure to ESG-related issues, as well as identify companies with business models that challenge the status quo. It is through actions like this that asset managers can meet their regulatory obligations, and – importantly – identify and avoid allegations of greenwashing.”
