Cash Floods Into ESG Funds as New Rules Ease Greenwashing Angst

By Bloomberg
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Date Published: December 8, 2021

(Bloomberg) —

The flow of cash into ESG funds picked up last quarter as Europe’s new disclosure requirements help restore confidence in a market hit by greenwashing allegations.

Money moving into funds tackling environmental, social and governance issues jumped by more than 25% from the previous three months, to make up more than half of all new inflows, according to new figures compiled by Morningstar Inc. Asset managers including Amundi and JPMorgan are refurbishing old funds and launching new Article 8 and Article 9 products, otherwise known as light and dark green investments.

The ESG market has been dogged by allegations of inflated and even false claims about the benefits that investments bring. The EU adopted in March what’s known as SFDR, for Sustainable Finance Disclosure Regulation, a historic measure that’s setting the pace for global requirements.

“SFDR has already made a noticeable impact on the European fund landscape,” Hortense Bioy, a director at Morningstar, said in a statement. “We’re seeing not only greater transparency, but also more strategies being transformed.”

Though still considered far from perfect, SFDR is forcing asset managers to clearly state and monitor progress of the ESG goals they’ve set. Asset managers also have to report how they as a business address environmental and social risks and to state the potential negative impact of investments.

Topping Morningstar’s list of 20 of the biggest asset managers ranked according to shares of light and dark green products was Amundi, at 6.2% or roughly twice that of fifth-ranked BlackRock. DWS, the German asset manager under investigation for greenwashing, ranked among the bottom five.

Assets in Article 8 and Article 9 funds now total 3.32 trillion euros ($3.85 trillion), according to Morningstar. Bioy says the pace of inflows is likely to stay high, if not increase, as the number of asset managers committing to net zero emissions increases.

Morningstar warned, though, to expect a “wide variation” in asset managers’ plans for cutting emissions, from how much they engage with companies to the impact of investment decisions. That’s even as managers increase use of more standardized approaches.

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