Shady Tactics Unearthed: Many "Green" Funds Ditching Sustainable Label as EU Deadline Looms
EU Revamp: Numerous Funds Labeled as Green Face Name Change Due to Insufficient Sustainability Standards - EU Rules Update: Multiple supposedly eco-friendly investment funds rebranding their labels
Here's the skinny on the latest shenanigans in the world of finance:
Forget about those seemingly sustainable funds you've got your money tucked away in. A disturbing trend has emerged among European funds—they've been ditching their eco-friendly labels, in what appears to be a sneaky move to skirt new EU regulations on sustainable investments [1][4].
Last year, an EU directive kickstarted, setting binding standards for funds or ETFs aiming to secure a spot in the sustainable investment game. To qualify, at least 80% of the capital must be invested in securities that support ecological, social, or sustainable objectives. However, in a twist as twisty as a carnival funhouse mirror, some funds have gone for a different approach: changing their names instead of playing by the rules [2][3].
This name game has caught the attention of investigative journalists from Correctiv and financial experts from Finanztip. The duo uncovered that a whopping 220 ETFs and 60 active funds have made some major pronoun changes to their names, either dumping sustainability terms entirely or replacing them with terms that don't carry anywhere near the same weight [2].
Who's leading the name-changing charge? Providers like iShares, J.P. Morgan, and Amundi—who collectively manage ETFs with billions in volume—are at the forefront of this questionable rebranding [2].
But here's the real kicker: There's a wild west feeling to how the term "sustainability" is defined. Fund providers have been taking advantage of this ambiguity, freely wheeling and dealing with "sustainability" terms in their investment product labels [3]. Finanztip's expert, Timo Halbe, calls them out for allegedly misleading investors. For example, a fund might don a "green" label, but still throw your hard-earned cash at companies pumping out coal or oil [3].
The EU deadline for existing funds to fully comply with these new rules is fast approaching: May 21, 2023 [1]. As we near the deadline, expect a wave of rebranded funds to try and slip through the cracks—the cleverly disguised wolf in sheep's clothing, if you will [3].
If you're feeling uneasy about your investments—and who wouldn't be?—do some research into your fund, and don't fall for marketing fluff. The truth, as always, lies within the fine print.
[1] https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12528-Sustainable-Finance-Taxonomy
[2] https://www.finanztip.ch/news/43336-rebellenbeswerten-kritische-journalisten-und-faenglichkeit-der-esg-funds.html
[3] https://www.reuters.com/business/sustainable-business/rebelling-esg-funds-swap-sustainable-terms-as-eu-rules-near-2023-2022-03-15/
[4] https://www.ft.com/content/5e0b33d1-3ad5-4a64-be83-db0dc47b22b3
- Despite the EU's efforts to enforce stricter rules on sustainable investments, some funds are evading the regulations by altering their names rather than adhering to the 80% investment requirement in ecological, social, or sustainable objectives, as reported by Correctiv and Finanztip.
- As the deadline for existing funds to comply with the EU's new sustainable investment rules approaches (May 21, 2023), there is concern that a surge of rebranded funds may attempt to bypass the regulations, potentially misleading investors and masking investments in less eco-friendly sectors such as coal and oil, as Finanztip's expert suggests.
