Almost one in four (24%) of funds categorised as article 8 under the EU’s sustainability rules still carry a risk of greenwashing suggests recently published research.
A survey carried out by MainStreet Partners, a subsidiary of AllFunds focused on ESG data, found that there has been a 20% increase in the number of article 8 funds launched in 2023.
At the same time there has been a 24% fall in the number of article 6 funds launched.
Q4’23 paints a “bleak picture” for Article 8 and Article 9 funds
According to MainStreet, this suggests that fund promoters want to avoid the non-ESG status of article 6 funds but also want to avoid the extra requirements that come with article 9 funds under the EU’s Sustainable Finance Disclosure Regime (SFDR).
However MainStreet’s 2024 ESG Barometer also found that 24% of those article 8 funds could be accused of greenwashing based on their sustainability framework and practices.
Furthermore, this is a 4% increase in the number of article 8 funds carrying the same greenwashing risk in the 2022 survey.
Fears over greenwashing rise 20% over three years
The risk come from those article 8 funds that have been given a ‘score’ of less than three under MainStreet’s rating methodology due to the fact that they “have done close to the bare minimum to classify as an article 8 product” with a few negative exclusions and basic ESG integration.
According to Neill Blanks, managing director at MainStreet Partners, the survey results should encourage investors to look beyond company operational sustainability data to properly understand a company’s true ESG credentials.
“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,” said Blanks.
“It is through actions like this that asset managers can meet their regulatory obligations and – importantly – identify and avoid allegations of greenwashing.”
There was also some positive news for investors and fund managers from the study. The previous year’s ESG Barometer had criticised the proposed European ESG Template as an idea that had potential but at the time contained too little information to be meaningful.
Fortunately this has changed, stated MainStreet, while adding that there is still some way to go. For example, there are still a number of asset managers failing to report any principle adverse impact (PAI) data but “there is enough [data] to start to form meaningful takeaways”.
The study was based on analysis of MainStreet’s database which contains more than 7,000 funds from 350 asset managers with a collective AuM of more than €10 trillion.
