Nearly one quarter of all Article 8 funds 'could have' a greenwashing risk

Nearly one quarter of all Article 8 funds could have a greenwashing risk, according to MainStreet Partners, the ESG and impact data provider, part of Allfunds Group, in its 2024 ESG Barometer report.

This  annual report gauges key ESG-related trends in the European and UK funds market and attributes fund sustainability performance based on MainStreet’s proprietary holistic three Pillar methodology.

Analysis is conducted by MainStreet Partners’ Fund Research team, drawing on its proprietary ESG database of more than 7,700 funds/ETFs and over 83,000 individual ISINs, covering more than 350 Asset Managers with AUM totalling more than €10trn.

The report reveals a 20% year-on-year increase in the number of Article 8 funds, compared to a 24% Y-O-Y decrease in the number of Article 6 funds.

However, despite the growth in the number of Article 8 funds, MainStreet Partners has found that a quarter (24%) of all Article 8 funds could be accused of greenwashing based on their sustainability framework and practices.

This is a 4 percentage-point increase of Article 8 funds that could be classified as ‘Greenwashing risk’ under MainStreet Partners’ criteria compared to the end of 2022.

According to MainStreet Partners’ 2024 ESG Barometer, strategies with the terms “Sustainable” (684) and “ESG” (631) were the most common used by asset managers. The “Sustainable” term was more likely to be found in active funds, whereas “ESG” was more commonly used in passive funds and ETFs.

Neill Blanks, managing director at MainStreet Partners, said: “2023 was a challenging year for asset managers on many fronts, including responding to regulatory changes in Sustainable Investing, such as the FCA’s recently released Sustainable Disclosure Requirements (SDR).

"We introduced an SDR synopsis in this year’s ESG Barometer, covering the key implications for asset managers, such as marketing, use of data, type of fund, being compliant in time to gain the desired fund label. In helping asset managers to anticipate the needs of investors, we urge them to look beyond company operational sustainability to understand how companies play into global ecosystems.

"This can provide clarity on supply chain resilience or exposure to ESG-related issues, as well as identify companies with business models that challenge the status quo. It is through actions like this that asset managers can meet their regulatory obligations, and - importantly - identify and avoid allegations of Greenwashing.”