24% of Article 8 funds face ‘greenwashing risk’

The sustainable investing landscape continues to grapple with greenwashing, a challenge recently highlighted by MainStreet Partners’ 2024 ESG Barometer report. The report uncovers that 24% of Article 8 funds may be inaccurately deemed sustainable, marking a rise in greenwashing concerns. This analysis, drawn from over 7,700 funds and ETFs, underscores the urgency for the industry, managing around €10 trillion in assets, to enhance transparency and authenticity.

The introduction of the Financial Conduct Authority’s (FCA) Sustainable Disclosure Requirements (SDR) in November 2023 mandates a 70% alignment of assets with sustainability objectives for funds branded ‘sustainable’. This move aims to solidify investor confidence and integrity within sustainable investment products.

The importance of accurate sustainability labelling

Furthermore, the report differentiates the use of ‘Sustainable’ and ‘ESG’ labels, pointing to distinct approaches in active and passive fund strategies. This variance highlights the necessity for nuanced and robust sustainability criteria in investment decision-making.

Amid these developments, Neill Blanks, managing director at MainStreet Partners, calls for asset managers to broaden their sustainability perspectives, including understanding companies’ impacts on global ecosystems. This approach not only meets regulatory demands but also mitigates greenwashing risks by promoting genuine sustainability practices.

He said: “2023 was a challenging year for asset managers on many fronts, including responding to regulatory changes in sustainable investing, such as the FCA’s SDR…In helping asset managers to anticipate the needs of investors, we urge them to look beyond company operational sustainability to understand how companies play into global ecosystems.

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. It is through actions like this that asset managers can meet their regulatory obligations, and – importantly – identify and avoid allegations of greenwashing.”

The role of engagement and SI Engage

In this context, engaging with companies and investors becomes crucial. SI Engage offers a platform for such engagement, enabling asset managers and stewardship professionals to deepen their commitment to real sustainability. Through active dialogue and collaboration, SI Engage helps combat greenwashing by fostering transparency, encouraging best practices, and supporting the development of sustainable business models.

For asset managers navigating the complexities of greenwashing and regulatory changes, leveraging engagement platforms like SI Engage is key. These platforms facilitate informed decision-making and strategic investments, aligning financial objectives with sustainable goals.

For more insights into the FCA’s sustainability disclosure requirements and strategies for navigating sustainable investing’s challenges, visit here.

Embracing comprehensive sustainability criteria and engaging actively in the investment process are essential steps toward mitigating greenwashing and advancing the integrity of sustainable investing. Get in touch to find out how SI Engage can support your teams.

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