Nearly a quarter (23%) of all Article 8 funds remain at risk of greenwashing, ESG and sustainability data provider MainStreet Partners has found.

The '2025 ESG and Sustainable Barometer report', which analyses over 9,500 investment strategies managed by more than 460 asset managers, also revealed that the proportion of Article 9 funds that have a greenwashing risk has reduced over time - now sitting at 3%.

MainStreet’s research also found that 13% of funds have failed its regulatory adherence assessment – which considers the relevant naming convention of the specific strategy together with the consistency of documentation, that it is clear and not misleading and uses fitting and targeted language.

The report, which evaluates key ESG and Sustainability related trends in the European and UK fund markets, also highlights a clear downward trend in asset manager ratings across each Sustainable Finance Disclosure Regulation (SFDR) classification and non-EU ratings.

The findings come at a time when sustainability standards and expectations have increased, as well as a pullback of several asset managers from key initiatives like the Net Zero Asset Managers initiative (NZAM) and Climate Action 100+ (CA100+), alongside a general reluctance to discuss ESG and Sustainability in the US.

Neill Blanks, managing director at MainStreet, said: “At the start of 2024, you may have been forgiven for thinking we would see less regulatory complexity than in the past three years. Unfortunately, that was far from the case, not least as fund naming rules came into effect on both sides of the Atlantic.

"Regulatory scrutiny continues to intensify, with the threat of fines being imposed for those that do not adapt, on top of the associated reputational damage.

"As markets continue to adapt to new frameworks, we expect to see a broader range of ESG and Sustainable investment products. These products will have clear and specific key performance indicators linked to the fund's ESG and Sustainable approach, allowing investors to better understand the intentions of the strategy, and most importantly help reduce the risk of greenwashing.

"With clear regulatory expectations and evolving industry best practices, investors should have more confidence in the integrity of Sustainable investment.”

The proportion of funds under the Paris Aligned Benchmark (PAB) regime that are in breach of their required exclusions has remained steady at 72%. However, breaches of the Carbon Transitional Benchmark (CTB) exclusions have surged from 36% to 49%.

This rise is primarily due to the overall reduction in the number of funds in scope of the regulation, in other words, funds have opted for a name change.

Among those that violate the exclusions set by the PAB regime, the most common reasons are exposure to activities in Coal and to UNGC Violators. Of the funds breaching the CTB exclusions and as per MainStreet’s methodology for assessing controversial activities the breaching holdings are linked to controversial weapons and OECD violators.
Sustainability Disclosure Requirements (SDR)

Within the confirmed SDR labelled funds (either applied or applying) MainStreet currently covers 36 funds as part of their Level II methodology.

Of the funds that it covers, nine are Impact funds with an average MainStreet ESG and Sustainability rating of 4.6. While 25 of the SDR labelled funds covered are Focus funds with an average MainStreet ESG and Sustainability rating of 4.1.

These average ratings are above the MainStreet ‘Sustainability Assessed’ standard (4.0 and above).

This report comes many months after MainStreet launched its Fund Sustainability Due Diligence Report – offering clients with both more insight into the ratings as well as providing a fully evidenced research process.