26/09/23

GREEN FINANCE: Asset managers turn to ‘green hushing’ on sustainable funds

As published on: ft.com, Tuesday 26 September, 2023.

Asset managers have been dropping the word “sustainable” from the names of funds in response to increasing regulatory and reputational concerns. Forty-four sustainable funds removed the label from their brand name during the first half of 2023, in contrast to 2022, when 99 funds added “sustainable” to their name, according to data from consultancy Broadridge.

Industry participants have blamed the lack of specific methodology for the calculation of sustainable investments under the Sustainable Finance Disclosure Regulation, as well as the publication of an EU consultation regarding sustainable fund names.

According to Broadridge data on sustainable funds domiciled in Europe, the asset management arm of Dutch lender ABN Amro removed “sustainable” from the names of 14 funds in January this year.

The manager said it was “waiting for more clarification” from the European Securities and Markets Authority on the use of “sustainable” in fund names. Esma launched a consultation in November last year as part of plans to introduce guidelines when using sustainability-related and environmental, social and governance-related terms in funds’ names.

Under the proposed guidelines, a fund would only be able to use ESG-related words in its name if 80 per cent of its investments met environmental or social characteristics or sustainable investment objectives.

This article was previously published by Ignites Europe, a title owned by the FT Group. A fund with “sustainable”, or words derived from it, in the name would need to meet an additional 50 per cent threshold related to sustainable investments.

Esma has yet to publish its final guidelines on the naming of sustainable and ESG funds. A spokesperson for ABN Amro said its “light green” Article 8 funds use the ESG moniker, while its Article 9 funds use “sustainable” in their brand name, in “accordance with laws and regulations and associated guidance”. Eight Société Générale sustainable funds removed “sustainable” from their brand name in March 2023.

SocGen has taken a “cautious stance” by temporarily removing “sustainable” from their Article 8 and Article 9 funds, according to a person with knowledge of the matter.

A spokesperson for UBP Asset Management, which dropped “sustainable” from the name of seven funds in December 2022, said it took a “proactive stance” to change fund names to “responsible” in order to “circumvent potential misunderstandings”.

The UBP spokesperson said the company was driven by regulatory concerns about ensuring fund names “genuinely” represent their investment strategies. Detlef Glow, head of Europe, Middle East and Africa research at Refinitiv Lipper, said Esma’s “stricter view” on sustainable products under SFDR had led firms to remove the term from the names of funds.

Raza Naeem, partner at Linklaters, agreed, saying Esma’s proposed fund naming guidelines imposed “very high eligibility standards” for funds using “sustainable” in their name. “Firms need to be careful that their funds and their underlying investments are not inadvertently perceived as sustainable investments such that they trigger these additional SFDR obligations,” he said.

He described the renaming as a “prudent course of action”, considering the “heavy focus” on greenwashing in regulatory supervision. “If the Esma guidelines end up imposing more reasonable standards, they can always change the names back,” he added.

Sam Duncan, founder and chief executive officer of Net Purpose, a platform for sustainable and impact investors, said the lack of clarity on the definition of sustainable investment had also resulted in growing regulatory and reputation risk for greenwashing.

Adrian Whelan, global head of market intelligence at Brown Brothers Harriman, said the regulatory and reputational risk of overpromising and delivering on ESG promises had “never been higher” as certain regulatory definitions were “still evolving” within SFDR.

The “downplaying of ESG credentials” by managers, known as “green hushing” and “green bleaching”, now appears to be as significant an issue as greenwashing, he said.

Glow said he expected a wave of name changes once the new naming guidelines were implemented in the third quarter this year. There were 612 renaming events between January and June 2023.

Tags

Green Hushing Sustainable Finance Green Finance