Less than 1% of sustainable funds meet the minimum expectations set out by the EU’s proposed voluntary Ecolabel, analysis by the European Securities and Markets Authority (Esma) has warned.
The label, awarded to green services and products, has been touted as a vital tool in supporting the European Green Deal, but Esma research found only a fraction of ESG funds would qualify under current requirements.
In an evaluation of 3,000 ESG Ucits funds with Article 8 or 9 labels, only 16 products met the portfolio greenness threshold of 50% on top of exclusionary metrics.
Esma has suggested relaxing the 50% ‘greenness’ requirement to boost the number of applicable funds.
According to the findings, 69 funds would meet a 40% threshold and 136 funds would meet a 30% threshold.
“The EU Ecolabel for retail financial products could benefit investors by introducing minimum sustainability criteria based on standardised definitions and increasing transparency,” Esma said.
Its success would depend on its “perceived credibility” and the “level of take-up by product managers”, the authority added.
As such, Esma said looser requirements would bring more capital into Europe’s green economy, while requirements will become easier to meet as the EU’s sustainable finance space matures.
“Looser requirements should lead to a higher offering of Ecolabel products, which may draw in a larger number of investors and volumes of financing, provided that such actions do not damage the credibility of Ecolabel,” Esma stated.
Additionally, the expanding scope of the EU Taxonomy will mirror changes in investor preference for greener investments, allowing funds to more easily achieve Ecolabel status, Esma said.
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