The European Union has made great strides in better-defining sustainable investments, but the new EU rules remain vague, leaving room for fund strategy providers to sneak in less socially-responsible categories.

Since the EU enacted the new disclosures in March, asset managers are adopting a range of strategies to justify their sustainable labels, Reuters reports.

The EU’s Sustainable Finance Disclosure Regulation (SFDR) was a way to bring greater transparency for investors focused on environmental, social, and governance issues, but fund managers argued that the definition of sustainability is too vague and could fuel confusion about what is considered sustainable.

For example, Legal & General Investment Management’s L&G UK Equity UCITS ETF is an Article 8 exchange traded fund that falls under the disclosure regulation. The ETF’s top 10 holdings, though, are the same as L&G funds tracking the FTSE 100 index that don’t carry the Article 8 label, including oil giants BP and Royal Dutch Shell, along with miner Rio Tinto and British American Tobacco.

Nevertheless, L&G affirms that the fund follows Article 8 since it promotes sustainability characteristics through LGIM’s Future World Protection List, a “binding element” of its investment process.

“The lens we should use is what is right. It’s not just about what is legally required because it seems not very much is legally required,” Eric Christian Pedersen, head of responsible investments at Nordea Asset Management, told Reuters.

Managers have sought to upgrade investment funds to Article 8, or even Article 9, which covers products with an explicit sustainable investment objective. Article 8 funds are seen as “light green” and Article 9 “dark green” in the industry.

According to a Reuters analysis of 20 of the biggest fund houses and their products marketed as Article 8 or 9, 14 firms revealed some Article 8 products have limited claims to sustainability, like those tracking conventional stock and bond indexes, which include exposure to in fuels or purchasing debt from countries with weak ESG credentials like Saudi Arabia and Nigeria.

Hortense Bioy, director of sustainability research at Morningstar, warned that Article 8 funds include climate-themed green to “very, very light green.”

“Managers need to ask if they are even relevant,” Bioy told Reuters. “That is the key message: investors shouldn’t expect anything from Article 8.”

Meanwhile, other industry experts argue that none of the asset managers are actually breaking any rules. Managers determine which article apply to them, and Brussels does not check the claims.

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