As the year ends, asset managers across Europe are anticipating the launch of even more stringent requirements for sustainable investments. At the same time, it’s increasingly becoming clear that EU regulation leaves ample room for investment managers to choose for themselves how they describe their ESG or impact investments. It’s just that supervisors will make them stick to their promises.
June’s police raids into the Frankfurt offices of asset manager DWS and Deutsche Bank demonstrated that navigating the choppy waters of sustainable investing can be dangerous if not done right. Data shows that investors remain hungry for impact investments, so it can be tempting to simply stick a green label on a product.
The raids also set the tone for how European authorities will deal with funds that don’t hold up their promises to investors. Luxembourg financial supervisor CSSF made clear that they will hold funds to account. At the European level, the financial markets authority ESMA did the same.
Great reclassification
Such comments put fund firms on edge. Many, including Amundi, decided to lower their classifications of ESG funds from Article 9 to Article 8, in a movement that Morningstar has called “the great reclassification”. Reputational risks around greenwashing are real, also given a group of investigative journalists, smelling blood, have picked up on this topic.
What has become clear though is that, without clear rules, it will be hard for asset managers to get it right.
Europe’s industry group for fund management, Efama, has welcomed the adoption of new European rules under which companies will be required to report sustainability data, giving investors ultimately more reliable data for assessing a company’s impact. In the meantime the industry “is left to pick up the data pieces”, Efama’s chief has said.
Other related articles and podcasts on Investment Officer Luxembourg:
- Good Practices in ESG Reporting - Benelux Debate
- Managing impact funds is a balancing act, says BLI’s Drui
- Economic impact of ESG finance hard to measure