European asset managers prepare for ESG fund purge, post new regulations
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According to a recent analysis, new regulations in Europe will lead to a widespread industry purge as asset managers face limits on attaching ESG labels to funds.
The analysis revealed on Wednesday that about 4,300 funds based in the European Union, which currently claim to prioritize environmental, social, or governance objectives, are potentially impacted by new guidelines from the European Securities and Markets Authority (ESMA) unveiled in May.
“While it’s impossible to predict the full impact of these guidelines, we expect their implications to be significant,” Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, said in an emailed statement. “They have the potential to completely reshape the ESG fund landscape in Europe.”
Also read: A new guidebook helps asset managers navigate Sustainability Disclosure Requirements, regulations
“At best, only 56% of funds with the specific term ‘sustainable’ in their names would be able to keep the term if the minimum threshold for a ‘meaningful’ allocation to sustainable investments is set at 30%,” Morningstar said. “The remaining 44% of funds would need to increase their allocation to sustainable investments, tweak their sustainable investment methodology, or rebrand.”
Morningstar highlights energy, industrials (including railroads and defence), and basic materials as the sectors most susceptible to divestment due to ESMA’s new regulations.
According to the research, the US, France, and China have the highest market value exposure.
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