Daily ESG Briefing: US ESG fund prospectuses poor guide to sustainability credentials, says new report shared with SEC

The latest developments in sustainable finance

Language in ESG fund prospectuses is a poor guide to their sustainability credentials, a new study on greenwashing by As You Sow suggests. The US non-profit worked with the University of California, San Diego to assess 94 funds with ‘ESG’ in their name and found that “linguistic patterns found in mutual fund and ETF prospectus language has a relatively low correlation with its ESG rating”. The study ‘Identify ‘Greenwashing’ Funds Using NLP Firms’ Prospectuses’ has been shared with the US’ powerful securities regulator, the SEC, which increasingly is scrutinising the sustainability claims of fund managers and their products.  “Right now, ESG investing in funds and ETFs is the Wild West due to the voluntary nature of ESG-related disclosures, absence of widely accepted terminology, and limited to no enforcement,” said As You Sow CEO, Andrew Behar. “We see funds with ESG in their names getting F’s on our screening tools because they hold dozens of fossil fuel extraction companies and coal-fired utilities. The intent of this study is to underscore the necessity for the creation of a common glossary of terms and fund classifications subject to SEC enforcement.” 

The European Commission has extended its consultation with a body of experts on the inclusion of gas and nuclear in the EU Taxonomy until 21 January, it was confirmed in a press briefing yesterday. The consultation on the long-awaited text, which suggests classifying some gas and nuclear activities as green in the Taxonomy, was controversially kicked off on New Year’s Eve with a deadline of 12 January for the EU Platform on Sustainable Finance to respond – just 7-8 working days, sparking outrage from many platform members.  Nathan Fabian, the Platform Chair and CIO of the Principles for Responsible Investment (PRI), said on Twitter the extension of the deadline was “very welcome”.  

French members of the ethical investment network Shareholders for Change has said it is considering initiating an engagement project with the French government. It could kick off as early as the first part of 2022, it said. This follows its Italian member Etica Sgr undertaking a pilot engagement project with the Italian government on climate change.   

The Kuwait Investment Authority (KIA), the $700bn sovereign wealth fund, has pledged to make its entire portfolio compliant with ESG standards. The fund’s Managing Director, Ghanem Al-Ghunaiman, told Bloomberg: “The process is ongoing with the KIA currently transitioning toward 100 percent ESG compliance for the entire portfolio while currently focusing on the E part of ESG.” He added that “the consideration of investing in securities of companies that have favorable environmental, social and governance attributes has become a core part of the investment decision-making process at the KIA”.  

The European Banking Authority (EBA) has said its most recent risk assessment questionnaire shows that 80% of banks are taking ESG factors into account in credit risk, while more than 70% of banks consider ESG for reputational and operational risks. The questionnaire sampled 131 banks covering more than 80% of the EU/EEA banking sector. The most used metrics to assess exposure to climate-related risks are financed GHG emissions and environmental scores/ratings of counterparties (both indicated by 45% of banks), followed by the share of green exposures (40%) and the share of environmentally harmful exposures (30%).   

Impax Asset Management has announced a partnership with Bullfinch Asset, a German fintech platform that pools, finances and operates green infrastructure projects, to invest in decentralised clean energy assets.  A fund managed by Impax has become shareholder in Bullfinch to establish a joint investment vehicle, “Greenfinch”, which will support the decarbonisation of the real estate sector. Greenfinch will invest in energy solutions such as solar panels, batteries and smart meters in the residential and commercial and industrial sectors in Germany, seeking opportunities elsewhere in Europe as well.