Some 23% of all Article 8 funds remain at risk of greenwashing, while the number of Article 9 funds that have a greenwashing risk has reduced to 3%, MainStreet Partners has found.
MainStreet’s 2025 ESG and Sustainable Barometer research also found that 13% of funds have failed its regulatory adherence assessment – which considers the relevant naming convention of the specific strategy together with the consistency of documentation, that it is clear and not misleading and uses fitting and targeted language.
Additionally, the report revealed a clear downward trend in asset manager ratings across each Sustainable Finance Disclosure Regulation (SFDR) classification and non-EU ratings.
The analysis of over 9,500 investment strategies run by more than 460 asset managers comes at a time when “sustainability standards and expectations have increased”, noted MainStreet. Meanwhile, several asset managers have pulled back from key initiatives such as the Net Zero Asset Managers initiative and Climate Action 100+.
Also read: Does membership of the Net Zero Asset Managers initiative matter to fund selectors?
Neill Blanks, managing director at MainStreet, said: “At the start of 2024, you may have been forgiven for thinking we would see less regulatory complexity than in the past three years. Unfortunately, that was far from the case, not least as fund naming rules came into effect on both sides of the Atlantic. Regulatory scrutiny continues to intensify, with the threat of fines being imposed for those that do not adapt, on top of the associated reputational damage.
“As markets continue to adapt to new frameworks, we expect to see a broader range of ESG and sustainable investment products. These products will have clear and specific key performance indicators linked to the fund’s ESG and sustainable approach, allowing investors to better understand the intentions of the strategy, and most importantly help reduce the risk of greenwashing. With clear regulatory expectations and evolving industry best practices, investors should have more confidence in the integrity of sustainable investment.”
ESMA and SDR labelled funds
Elsewhere, the report assesses the impact of new fund labelling regimes introduced by the European Securities and Markets Authority (ESMA) and the Financial Conduct Authority in the UK.
Also read: SFDR and SDR: Two paths diverging on sustainable finance?
In Europe, the proportion of funds under the Paris Aligned Benchmark (PAB) regime that are in breach of their required exclusions has remained steady at 72%. However, breaches of the Carbon Transitional Benchmark (CTB) exclusions have surged from 36% to 49%. This rise is primarily due to the overall reduction in the number of funds in scope of the regulation, according to MainStreet – in other words, funds have opted for a name change.
Among those that violate the exclusions set by the PAB regime, the most common reasons are exposure to activities in coal and UN Global Compact violators. Of the funds breaching the CTB exclusions. and as per MainStreet’s methodology for assessing controversial activities. the breaching holdings are linked to controversial weapons and OECD violators.
Within the confirmed Sustainability Disclosure Requirement (SDR) labelled funds, MainStreet currently covers 36 funds as part of their Level II methodology. Of these funds, nine are Impact funds with an average MainStreet ESG and sustainability rating of 4.6. While 25 of the SDR labelled funds covered are Focus funds with an average
MainStreet ESG and Sustainability rating of 4.1. These average ratings are above the MainStreet ‘Sustainability Assessed’ standard (4.0 and above).
