Clarity AI has reported 80% of Article 8 funds would fail to comply with the European Securities and Markets Authority‘s (Esma) proposed fund labelling regulation.
The sustainability tech platform’s analysis of 18,000 funds found that only 20% of Article 8 funds with the term sustainable currently plan to make sustainable investments of over 50%.
In November, Esma proposed the introduction of minimum quantitative thresholds for any fund using an ESG-related term in their name.
The guidelines would require any Article 8 funds that use ESG or sustainability-related terms in their name to invest at least 50% of assets into sustainable investments.
The report also found that 20% of Article 8 funds in Europe plan to make less than 10% sustainable investment.
According to Clarity AI, the proposal from Esma does not align particularly closely with either of the sustainable fund labelling proposals from the UK or the US.
As a result, 95% of funds with the term sustainable in their name would require renaming or restructuring to be sold across all three markets under Esma’s proposed regulation.
Patricia Pina, head of product research and innovation at Clarity AI, said: “This is not only an added cost in terms of compliance but also underscores how different actors – in this case, regulators – are interpreting the meaning of core concepts like ESG and sustainability.”
The report also revealed nearly three-quarters of Article 8 funds made no reference to ESG or sustainability in their name.
This suggests that the proposals by Esma will have a minimal impact on the market, according to Clarity AI.
The figures also support Clarity AI’s view that product providers have been using the Article 8 label as a “catch-all” category.
Esma’s proposed fund labelling regulation has faced further criticism as the Securities Market and Stakeholder Group argued there is too much overlap between Article 8 and Article 9.
The European Fund and Asset Management Association also recommended Esma delay the fund-naming guidance.
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