Business Maverick: Billions pulled from Europe’s controversial ESG investing fund category

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ESG has become a punching bag for the far right, disgruntled corporate executives and even industry insiders.

It’s a category within Europe’s ESG investing rulebook that saw huge growth last quarter, as the asset-management industry slapped an Article 8 – also known as “light green” – tag on well over 600 funds that previously weren’t classified as sustainable, according to data provided by Morningstar Inc. At the same time, clients withdrew more than $30-billion from such products. A stricter environmental, social and governance classification – Article 9 – saw $6-billion of inflows.

For investment clients trying to decide where to get the most bang for their ESG buck, it’s now “impossible” to do a meaningful comparison across products, according to Morningstar. A new regulatory framework is taking effect that will require financial advisers to make sure they’re taking ESG retail clients’ expectations into account, and explaining the characteristics of financial products in a way that doesn’t lead to misunderstandings. It’s an amendment to the revised Markets in Financial Instruments Directive that law firm, which advises asset managers, has already suggested will add a new layer of risk to the asset-management industry.

As ESG has increasingly affected investment decisions in Europe, the need for transparent and comparable data has become pivotal. Public-company disclosures can differ drastically, as reporting standards are new and often changing. Bloomberg and MSCI were the most frequently named as the No 1 or No 2 source of ESG data among European funds that were surveyed.

 

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