When the USAA Sustainable World Fund rebranded, its owner, Victory Capital Management, put a note in the fund’s perspective that fund managers may disagree with an external provider’s ESG rating.ĭisagreement over ratings between fund managers and rating agencies, or the rating agencies between themselves, is another contributing factor to confusion around sustainability labels.ĭisputes around ‘Paris-aligned’ investmentsĪnother confusion is around the term ‘Paris alignment'. From the sample drawn from the list, the Aberdeen Select International Equity Fund is the only fund to have reduced its carbon footprint this year (see chart below). Further analysis reveals that it has (unsurprisingly) increased its carbon footprint in 2021.Ĭapital Monitor analysis of data from As You Sow, a non-profit foundation promoting corporate social responsibility, reveals a selection of funds that have changed their names to reflect a sustainability mandate in the past 18 months, while increasing their carbon footprint. More than 69 funds shifted to include ESG criteria between 20, including 25 in 2021, according to Morningstar.ĭepending on your definition, this does not necessarily mean these funds are more sustainable.Īs the Wall Street Journal reports, funds like the USAA Sustainable World Fund, formerly the USAA World Growth Fund, hold millions of dollars-worth of shares in fossil fuel companies, despite an apparent move to green. Global assets in sustainable funds reached $3.9trn at the end of September, according to Morningstar data – an increase of two-thirds since the introduction of SFDR in March.Īlso on the rise is the number of funds that have rebranded to sustainable. The number of SDFR-aligned ‘sustainable’ assets has grown substantially. While Nuveen takes a “conservative” approach to labelling, Wilson concedes others interpret SFDR regulating differently. However, there remains “a lot of subjectivity inside how asset managers have to interpret and decide where to place their strategies – Article 6, Article 8 or Article 9”. As US Securities and Exchange Commission (SEC) chair Gary Gensler said in an address to the organisation’s Asset Management Advisory Committee in July: “There’s not a standardised meaning of these sustainability-related terms.”īecause of this confusion, regulators are establishing new rules that will help to clarify fund labelling, “but that regulation is very woolly in some regards – the definitions are lacking”, Gensler said.Īs Sarah Wilson, head of ESG integration at Nuveen points out, the EU’s Sustainable Finance Disclosure Regulation (SFDR) “is probably the most advanced and well-established at this point”. Her line of argument highlights the current confusion around fund labelling, which leads to accusations of mis-selling, and which regulators are attempting to resolve. She argued Influence Map had conflated various ESG strategies, when in fact most of the funds it mentioned never claimed to be Paris-aligned in the first place. In response to the report, Linda-Eling Lee, global head of ESG research at MSCI, wrote a letter to the Financial Times criticising its findings. One month earlier, non-profit activist group Influence Map claimed that 421 out of 593 ESG equity funds (71%) have what it assessed to be a negative Portfolio Paris Alignment score, “indicating the companies within their portfolios are misaligned from global climate targets”. For example, in September, the DWS Group came under investigation for allegations it was inflating the number of its assets subject to ESG integration. The surge of ESG-labelled products hitting the market has been accompanied by accusations that financial institutions are misrepresenting or overselling their products as ‘sustainable’ or ‘Paris-aligned’.
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