In the face of heightened scrutiny over environmental, social, and governance investments, European asset managers are backing off from the ESG appellation in company filings amid concerns that their vague descriptions may no longer pass regulatory muster.
Money managers like Allianz Global Investors and DWS Group have either stopped using the “ESG integrated” catchphrase in public documents or played down its significance with investors after the new European disclosure rules were put into effect, Bloomberg reports.
Market observers have been critical of the way that fund managers have pushed out “ESG” strategies that do little to actually achieve ESG goals, a practice that many have called “greenwashing.”
“If you claim to do ESG integration, that means nothing,” Hortense Bioy, global director of sustainability research at Morningstar, told Bloomberg. “You have to define it, because there is no common definition.”
The move is an indication that Europe’s landmark anti-greenwash rulebook is keeping the industry in check after assets surged to over $35 trillion last year. The Sustainable Finance Disclosure Regulation was implemented in March. Even before the new rule was enacted, the European investment managers cleared out the ESG labels from $2 trillion in fund assets.
Europe’s latest anti-greenwash rules include key clauses to force asset managers to back up their ESG claims. For example, SFDR contains an Article 8 that requires fund providers to define “light” green assets and an Article 9 for “dark” green assets. The shades refer to the degree of importance for ESG concerns. Additionally, the EU is still working on more detailed descriptions to clarify any misconceptions.
“Hopefully that will bring more clarity as to what all those funds are doing,” Bioy added. Due to stricter regulations, whatever asset managers say going forward “is going to be binding … because the questions will be more specific, you are going to have to provide details, and then you are going to be bound to that.”
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