ESG will increase transparency in Europe

The European Commission has increased investor interest in ESG and shone a spotlight on the European fund industry


Detlef Glow, head of Lipper EMEA research, Refinitiv

From a European perspective, the action plan on financing sustainable growth launched by the European Commission (EC) is the main driver for the increased interest from investors in ESG investing.

ESG would still be a niche topic if the EC had not put so much pressure on investors and fund promoters, and the launch of an action plan with clear deadlines and start dates has shifted the focus of all industry participants dramatically.

But not all the actions that have to be implemented by the financial services and investment industry are aligned with each other or other initiatives outside the action plan, which means the financial industry has to fulfil multiple regulatory specifications.

The rising demand for ESG-focused products led to a wide range of new offerings in the whole investment ecosystem. For example, mutual funds with a sustainable investment objective need additional data sets – the so-called non-financial data.

It is therefore not surprising that data vendors and specialised data providers started to collect new data and increased their offerings accordingly. The same is true for the index business, as more demand for ESG related indices, for example for new ETFs, led to new index families and to a higher demand for non-financial data to select the constituents of those indices.

Even as the majority of these activities seem to foster the acceptance and usage of sustainable investment criteria in all parts of the financial industry, some can be seen as so-called greenwashing since it seems like the respective organisations want to take profits from the trend toward sustainable investing without taking the necessary actions. Investors need to implement measures into their fund selection process that will help them identify products in line with their investment goals and to avoid greenwashing.

That said, there is no common definition of a sustainable investment approach that would fit all investors. ETF and fund promoters need to communicate their approaches with regard to their sustainable investing strategy very clearly so that all investors can make informed decisions. There will be an increasing demand for transparency on the measures and actions taken to translate the prospectus language into the respective ESG strategies from both investors and regulators. The trend towards ESG investing will increase the transparency within the European fund industry.

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