(Bloomberg) — Asset managers love them, while clients seem increasingly wary of them: Article 8 funds.
(Bloomberg) — Asset managers love them, while clients seem increasingly wary of them: Article 8 funds.
It’s a category within Europe’s ESG investing rulebook that saw huge growth last quarter, as the asset-management industry slapped an Article 8 — also known as “light green” — tag on well over 600 funds that previously weren’t classified as sustainable, according to data provided by Morningstar Inc. At the same time, clients withdrew more than $30 billion from such products. A stricter environmental, social and governance classification — Article 9 — saw $6 billion of inflows.
When an asset manager sells a fund as Article 8, they’re promising clients that their money will go toward “promoting” sustainability. It’s a concept that was enshrined in the EU’s Sustainable Finance Disclosure Regulation, which started being enforced in March 2021 as the world’s boldest anti-greenwash rulebook to date. But 16 months on, there’s hardly any agreement within the fund industry as to what “promoting” sustainability means. What’s more, even regulators in the EU don’t really see eye to eye.
For investment clients trying to decide where to get the most bang for their ESG buck, it’s now “impossible” to do a meaningful comparison across products, according to Morningstar.
Meanwhile, there continue to be questions around the ESG-ness of Article 8. A Morningstar data analysis found that roughly two-thirds of Article 8 funds target between zero and 10% minimum exposure to sustainable investments.
A new regulatory framework is taking effect that will require financial advisers to make sure they’re taking ESG retail clients’ expectations into account, and explaining the characteristics of financial products in a way that doesn’t lead to misunderstandings. It’s an amendment to the revised Markets in Financial Instruments Directive that law firm Simmons & Simmons, which advises asset managers, has already suggested will add a new layer of risk to the asset-management industry.
“Because of patchy data and a lack of direct comparability between products, financial advisers will struggle to fulfill their new obligations,” according to Morningstar.
Social Taxonomy Shelved | The next milestone in Europe’s efforts to create a global benchmark for ESG investing has been shelved indefinitely as officials balk at devoting resources to a process that’s already marred by deep political division.
Meta Reacts to Data Pact | Meta Platforms Inc. reiterated its threat to pull its popular Facebook and Instagram services from the European Union if a new transatlantic data transfer pact doesn’t materialize. Its latest warning comes amid an imminent data flow ban it already faces from Ireland’s data-protection watchdog, which oversees the tech giants based in the country.
Fashion Probe | The UK’s competition watchdog started a probe into potentially misleading environmental claims made by fashion brands Asos Plc, Boohoo Group Plc and George at Asda, over greenwashing concerns.
ISSB Faces Criticism | The organization aiming to set worldwide climate reporting requirements for decades to come is under fire for putting corporate interests ahead of the planet’s.
Pimco Downgrades ESG Funds | Pacific Investment Management Co. and NN Investment Partners have cut the ESG status of a number of their funds after European authorities clarified rules guiding such classifications.
No Tax Break | In Luxembourg, the world’s biggest hub for ESG asset managers, firms have been unable to take advantage of a tax break intended to reward their efforts to do more sustainable investing.
Banks Fall Short | The world’s biggest banks are coming up short in their efforts to rein in global warming, according to an investor group representing more than $50 trillion of assets.
EU Climate Benchmarks | Investment funds tracking EU-regulated climate benchmarks jumped 25% last quarter, as asset managers look for ways to combat greenwashing.
EU Deal to Cut Gas Use | European Union countries reached a political agreement to cut their gas use by 15% through next winter as the prospect of a full cutoff from Russian supplies grows increasingly likely.
Gas and Nuclear | EU lawmakers voted to allow natural gas and nuclear energy to be labeled as green investments, removing the last major barrier to potentially billions of euros of funding from environmental investors.
US Climate Deal | In a breakthrough that surprised much of Washington, Senate Majority Leader Chuck Schumer and Senator Joe Manchin announced that they agreed on a plan that includes a record $370 billion in spending to fight climate change.
US States Target Banks | West Virginia will restrict BlackRock Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co. from state banking contracts after the Republican state treasurer found that the companies engage in a so-called boycott of the fossil-fuels industry.
FSB Warns Banks | Financial institutions should brace for greater scrutiny as the world moves toward a low-carbon economy, the Financial Stability Board said in a report.
EU Targets Insurers | The EU’s top insurance regulator wants national authorities to tighten supervision amid evidence companies are using artificial intelligence to drive up prices unrelated to the risk or cost of service.
Guarding Against Greenwashing | As ESG has increasingly affected investment decisions in Europe, the need for transparent and comparable data has become pivotal. Public-company disclosures can differ drastically, as reporting standards are new and often changing. Bloomberg and MSCI were the most frequently named as the No. 1 or No. 2 source of ESG data among European funds that were surveyed.
Most traders named multiple providers, suggesting they value various data inputs, and there’s room for competition. Almost a quarter of traders surveyed believe greenwashing accounts for more than 50% of ESG. Small funds were surprisingly more pessimistic, as they showed more support for ESG throughout the study.
What percentage of ESG is greenwashing?
US Climate Bill’s Impact | Vestas Wind Systems AS, First Solar Inc., SolarEdge Technologies Inc. and other clean-energy equipment suppliers may see elevated US demand for wind and solar energy in 2023-2025 — with potential upgrades to consensus sales expectations — if the Inflation Reduction Act becomes law.
Carbon Border Tax | This will be a “make or break” year for launching a carbon tariff on imported goods, according to BloombergNEF. The European Commission has proposed levying a tariff on iron and steel, aluminum, fertilizers and cement. In addition, the European Parliament wants to include organic basic chemicals, plastics and hydrogen. With introduction planned for next year, “consensus on devilish questions around coverage, timeline and exports is lacking,” analyst Antoine Vagneur-Jones wrote in a July 27 report.
OFF THE SHELF
ESG Meets Real World | ESG has become a punching bag for the far right, disgruntled corporate executives and even industry insiders.
Taxonomies | Floods, droughts and food shortages are just some of the effects of climate change, while exploitation and corruption drive social injustice around the world. Governments tackling these issues are realizing that to solve them, they need first to define and measure them. Some are turning to so-called taxonomies that establish which economic practices and products are harmful to the planet and which aren’t. The idea is that the price of goods and services must reflect the human and environmental cost of both production and disposal, which in turn would spur much-needed change. But designing a code is fiendishly difficult.
OTHER ESG-F0CUSED FIXTURES
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NEW DELHI: The tense diplomatic relations between India and Canada are unlikely to impact trade and investments between the two countries as economic ties are driven by commercial considerations, according to experts. Both India and Canada trade in complementary products and do not compete on similar products.
“Hence, the trade relationship will continue to grow and not be affected by day-to-day events,” Global Trade Research Initiative (GTRI) Co-Founder Ajay Srivastava said.
Certain political developments have led to a pause in negotiations for a free trade agreement between the two countries.
On September 10, Prime Minister Narendra Modi conveyed to his Canadian counterpart Justin Trudeau India’s strong concerns about the continuing anti-India activities of extremist elements in Canada that were promoting secessionism, inciting violence against its diplomats and threatening the Indian community there.
India on Tuesday announced the expulsion of a Canadian diplomat hours after Canada asked an Indian official to leave that country, citing a “potential” Indian link to the killing of a Khalistani separatist leader in June.
Srivastava said these recent events are unlikely to affect the deep-rooted people-to-people connections, trade, and economic ties between the two nations.
Bilateral trade between India and Canada has grown significantly in recent years, reaching USD 8.16 billion in 2022-23.
India’s exports (USD 4.1 billion) to Canada include pharmaceuticals, gems and jewellery, textiles, and machinery, while Canada’s exports to India (USD 4.06 billion) include pulses, timber, pulp and paper, and mining products.
On investments, he said that Canadian pension funds will continue investing in India on grounds of India’s large market and good return on money invested.
Canadian pension funds, by the end of 2022, had invested over USD 45 billion in India, making it the fourth-largest recipient of Canadian FDI in the world.
The top sectors for Canadian pension fund investment in India include infrastructure, renewable energy, technology, and financial services.
Mumbai-based exporter and Chairman of Technocraft Industries Sharad Kumar Saraf said the present frosty relations between India and Canada are certainly a cause for concern.
“However, the bilateral trade is entirely driven by commercial considerations. Political turmoil is of a temporary nature and should not be a reason to affect trade relations,” Saraf said.
He added that even with China, India has acrimonious relations but bilateral trade continues to remain healthy.
“In fact, bilateral trade is an effective tool to improve political relations. India must make special efforts to increase our bilateral trade with Canada,” Saraf said.
India and Canada have a strong education partnership. There are over 200 educational partnerships between Indian and Canadian institutions.
In addition, over 3,19,000 Indian students are enrolled in Canadian institutions, making them the largest international student cohort in Canada, according to GTRI.
According to the Canadian Bureau for International Education (CBIE), Indian students contributed USD 4.9 billion to the Canadian economy in 2021.
Indian students are the largest international student group in Canada, accounting for 20 per cent of all international students in 2021.
Benefits of educational partnerships are mutual and hence the current situation may have no impact on the relationship, Srivastava said.
Apple supplier Foxconn aims to double its workforce and investment in India by next year, a company executive said on Sunday.
Taiwan-based Foxconn, the world’s largest contract manufacturer of electronics, has rapidly expanded its presence in India by investing in manufacturing facilities in the south of the country as the company seeks to move away from China.
V Lee, Foxconn’s representative in India, in a LinkedIn post to mark Indian Prime Minister Narendra Modi’s 73rd birthday, said the company was “aiming for another doubling of employment, FDI (foreign direct investment), and business size in India” by this time next year.
He did not give more details.
Foxconn already has an iPhone factory employing 40,000 people in the state of Tamil Nadu.
In August, the state of Karnataka said the firm will invest US$600 million for two projects to make casing components for iPhones and chip-making equipment.
The company’s Chairman Liu Young-way said in an earnings briefing last month that he sees a lot of potential in India, adding: “several billion dollars in investment is only a beginning”.
Taiwan election: Foxconn’s Terry Gou taps star-powered running mate
Last month, Foxconn’s billionaire founder Terry Gou said he would run for the Taiwanese presidency in next year’s election, as an independent candidate.
He said the ruling and independence-leaning Democratic Progressive Party (DPP) was unable to offer a bright future for the island and left Foxconn’s board following his decision to run.
The firm operates the world’s largest iPhone plant, in the city of Zhengzhou in Henan province.
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