Recent research from Novethic revealed that 93% of ESG-labeled investment funds in the EU do not have any minimum commitments for alignment with the EU Taxonomy. The EU taxonomy was designed to establish the criteria for sustainable economic activity, but it appears that ESG-labelled funds are opting not to use the criteria. Responsible Investor reported:
“The European ESG fund market has seven main labels: France’s SRI and Greenfin labels, Germany’s FNG-Siegel, Luxembourg’s LuxFlag, Belgium’s Towards Sustainability, Austria’s Umweltzeichen and Nordic Swan.
Of the 2,071 funds studied, most reported no taxonomy-alignment at all. Novethic analysed the average level of taxonomy-alignment for the 367 funds that published a value greater than zero.”
The EU Taxonomy and SFDR are the two major pieces of sustainable investment legislation in the EU and have been under scrutiny for some time. The ability for funds to use ESG labeling while not conforming to the EU taxonomy is gaining more attention in EU financial markets as some regulators are eyeing new fund name rules. Issues with the present sustainable finance framework will likely persist until the EU either passes new legislation or amends the SFDR and EU Taxonomy. It is a matter of whether the EU will be able to pivot and make these systems work as intended. Until then, investors may find themselves in a pickle if buying non-aligned ESG-labeled funds.
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