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Billions Pulled From Europe's Controversial ESG Investing Fund Category – Financial Post



Asset managers love them, while clients seem increasingly wary of them: Article 8 funds.

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(Bloomberg) — Asset managers love them, while clients seem increasingly wary of them: Article 8 funds.

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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.

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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. 

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“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.

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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.

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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.

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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. 

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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.

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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.

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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. 


Run NSUB ESG to subscribe to the ESG newsletters listed below:

  • For the ESG Daily newsletter, click here
  • For the daily “Green Insight” newsletter, click here
  • For the weekly wrap of ESG bond sales, click here
  • For the weekly ESG Investing digest, click here
  • For the weekly wrap of Equality news, click here



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For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio



Fee competition in the exchange-traded fund business is driving down the cost of investing to new lows.

A simple little ETF strategy I call the Freedom .08 Portfolio proves it. Some previous names for this portfolio included Freedom 0.15 and Freedom 0.11. The numbers are based on the aggregate management expense ratio for the portfolio, which has fallen ever lower through the years. That’s how we get to Freedom .08 in early 2023. That’s 8 cents in fees for every $100 you have invested.

Here’s how the Freedom .08 Portfolio is put together using a 70:30 asset mix of stocks and bonds.:

-30 per cent in the Desjardins Canadian Universe Bond Index ETF (DCU-T): The MER for this fund is 0.08 per cent, which is at the low end for aggregate bond ETFs covering the broad Canadian market for government and corporate bonds. It tracks the Solactive Canadian Bond Universe total return Index, which is a relative newcomer to the Canadian market. You can compare returns to competitors using the bond fund installment of the 2023 Globe and Mail ETF Buyer’s Guide, but they’re very similar to more established indexes.


-30 per cent in the iShares Core S&P/TSX Capped Composite Index ETF (XIC-T): The MER for this fund is 0.06 per cent and the underlying index is the ultimate benchmark for Canadian stocks.

-20 per cent in the Franklin International Equity Index ETF (FLUR-NE): The MER here is 0.1 per cent, which is strikingly low for the international equity category. That’s markets outside North America, by the way. Solactive is again the index provider. In doing your research, compare returns against international equity ETFs tracking the more traditional MSCI EAFE index.

-20 per cent in the Vanguard S&P 500 Index ETF (VFV-T): The MER is 0.09 per cent and the index is one you know and love, the S&P 500.

ETFs trade like stocks, which means you’ll need a digital brokerage account to build a portfolio. For extreme frugal investing, consider the zero-commission brokers Wealthsimple, National Bank Direct Brokerage, and Desjardins Online Investing. CI Direct Trading and Questrade offer ETF purchases at no cost, but you pay the usual commission to sell.

A final point of comparison for the Freedom 0.08 Portfolio is a popular kind of exchange-trade fund called the asset allocation fund. You can buy these fully diversified portfolios with MERs of 0.2 to 0.24 per cent.

— Rob Carrick, personal finance columnist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Bombardier Inc. (BBD-B-T) The plane maker is generating cash, paying down debt and raising its financial targets. Investors are paying attention, too: The share price has rallied more than 250 per cent over the past eight months. David Berman asks: Has the stock become relevant again?

WELL Health Technologies Corp. (WELL-T) After this health-care company reported record quarterly financial results last week, the share price rallied nearly 16 per cent on high volume. Analysts believe this positive price momentum will continue. The average one-year target price implies a 61 per cent potential gain for the stock. Jennifer Dowty takes a look at the investment case.

The Rundown

Banking woes, Fed keep investors on edge in nervous stock market

Investors are settling in for a long slog in the U.S. stock market in coming months, braced for more tumult in the banking sector and worries over how the Federal Reserve’s tightening will ripple through the economy. As David Randall of Reuters reports, many worry that other nasty surprises are lurking as the rapid series of interest rate hikes the Fed has delivered over the past year dry up cheap money and widen fissures in the economy.

Grocery REITs are a safe harbour in the market storm

Feeling gouged by high grocery prices? Bummed out by bank runs? Sick of stock market volatility? With inflation and rising interest rates creating turmoil in the economy and financial markets, these are tough times to be a consumer – or an investor. John Heinzl is here to offer some help by profiling some real estate investment trusts in the grocery sector. The goal: put some of that grocery money back in your pocket while enabling you to sleep better even as markets gyrate.

Throw caution to the wind with the Free Cash portfolio

It’s time to catch up on the value stock race. Norman Rothery pitted 14 popular measures of value against each other in the U.S. market. Each measure was used to form a tracking portfolio containing the cheapest 10 per cent of the stocks in the S&P 500 index based on that measure. The 14 tracking portfolios were equally weighted and rebalanced annually. So far, the trend favours investors who keep an eye on debt while hunting for bargains.

Read more from Norman Rothery: Portfolios for Value and Dividend Investors

Canadian bank stocks may not be quite as special as we think

Canadians are used to thinking of bank stocks as a safe, nearly guaranteed way to bet the market. They may want to think again. As Ian McGugan tell us, investors would be wise then to consider the prospect of a future in which Canadian banks no longer churn out market-beating results with clockwork regularity.

Strength in megacap stocks masks broader U.S. market woes

Investors are relying on an old strategy to navigate the current tumult in asset prices: buying shares of the massive U.S. companies that led markets higher for years. Shares of the top five companies by market value — Apple , Microsoft, Alphabet, Amazon and Nvidia — have gained between 4.5% and 12% since March 8, when troubles at Silicon Valley Bank set off banking system worries. In that period, the S&P 500 has fallen 0.5%. Lewis Krauskopf of Reuters tells us more.

Others (for subscribers)

Monday’s analyst upgrades and downgrades

Globe Advisor

Where investors put their money in this year’s RRSP season

How to play the demand for microprocessors as chatbots, robots and EVs disrupt sectors

Are you a financial advisor? Register for Globe Advisor ( for free daily and weekly newsletters, in-depth industry coverage and analysis.

Ask Globe Investor

Question: Harvest Healthcare Leaders has units that trade in U.S. dollars on the TSX. For tax purposes, is the income considered foreign income or Canadian? For example, can donations to registered charities in the U.S. be deducted against the income from HHL.U? – Michael K.

Answer: Only a small amount (9.26 per cent) of the income from this ETF was classified as foreign income in 2022, according to the Harvest Funds website. Most of the distributions (about 94 per cent) are treated as return of capital. So, you won’t get much help here for U.S. charitable contributions.

–Gordon Pape (Send questions to and write Globe Question in the subject line.)

What’s up in the days ahead

Bond markets are suggesting interest rate cuts loom for this summer in both Canada and the U.S. But central bankers are dropping few hints. Who should we believe? Veteran bond fund manager Tom Czitron will provide some insight.


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Online investment fraud increasing in Manitoba



Manitobans are being warned about the rise in fraudulent online investment websites, which have exploited some Manitobans out of more than $200,000.

During the Manitoba Securities Commission’s (MSC) ongoing investigation into cryptocurrency fraud, the agency uncovered 66 victims in Manitoba who were scammed through 34 separate online platforms. These Manitobans had transferred money to offshore crypto exchanges based in Lithuania and Bulgaria.

According to Jason Roy, MSC senior investigator, the initial investments were smaller amounts of money as the fraudsters know if they ask for too much money right off the bat, then people are more likely to decline the offer.

“They start with these small amounts and then show you fake trading results and get you excited about putting more money in,” he said in an interview with CTV Morning Live on Monday.


The victims’ losses ranged from $306 to $206,000, with the total losses coming to $710,000.

Roy said there are likely a lot more investment fraud victims in Manitoba, but they may feel too embarrassed to report what happened to them.

“Really, only five to 10 per cent of victims actually report being victimized,” he said.

For those who come across an online investment website, there are certain things to look out for to ensure it is legitimate. Roy recommends ensuring that you are dealing with a company that is registered to do business in Canada. Checking a company’s registration can be done online.

Other common attributes of the investment fraud websites uncovered in the MSC investigation include:

  1. Targeting victims on social media;
  2. Promoting cryptocurrency or Forex trading;
  3. Promising an unreasonably high or quick return on investment;
  4. Victims being unable to withdraw their initial investment or fake returns;
  5. Operating offshore, but telling investors they have offices in Canada;
  6. Requesting investors to convert funds to cryptocurrency; and
  7. Getting investors to provide remote access to their computers or phones.

Those who are solicited by a fake trading website, which can appear to be legitimate, are asked to report the incident by calling 1-855-372-8362.

– With files from CTV’s Katherine Dow.


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Sen. Bob Casey oversaw Pa. pension investment in China-linked firm



Sen. Bob Casey (D-Pa.) supervised a potentially risky investment worth more than $31 million from state worker pensions into a Chinese government-backed firm — that has since been deemed a threat to the US — while he served as the commonwealth’s treasurer in 2006.

A state report on the fund from 2007 notes holdings by the Pennsylvania State Employees’ Retirement System in China Mobile Ltd. valued at $31,386,930 — the eighth-largest foreign asset held by the state at the time, joining a list that included major brands like Nestle, UBS and BP.

A report covering the previous year, 2005, does not list China Mobile as one of the fund’s 10 largest overseas holdings, nor does one for the year before that — though the value of many other foreign investments remained similar.

The state report for 2007 also does not show China Mobile among the fund’s ten largest international assets.


China Mobile has since been designated a national security threat, with the Department of Defense in June 2020 noting the company was part of the Chinese Communist Party’s “military-civil fusion national strategy.”


Sen. Bob Casey (D-Pa.) as Pennsylvania treasurer in 2006 placed more than $31 million of state employees’ pensions into a Chinese firm.
NurPhoto via Getty Images

The New York Stock Exchange delisted China Mobile in January 2021 following the Pentagon’s designation.

President Biden, in a June 2021 executive order, further demanded US shareholders divest from the company, citing China Mobile as one of many threats “posed by the military-industrial complex of the People’s Republic of China.”

The Federal Communications Commission also deemed China Mobile a threat to national security in March 2022.

Founded in Hong Kong on Sept. 3, 1997 — weeks after the territory was handed over to Beijing by the United Kingdom — China Mobile is owned by China Mobile Communications Corp., which is a subsidiary of the People’s Republic of China.


President Joe Biden.

President Biden in 2021 called China Mobile one of many threats “posed by the military-industrial complex of the People’s Republic of China.”
Bloomberg via Getty Images

The China Mobile assets were one of many lucrative holdings Casey oversaw when he served as state treasurer from 2005 to 2007, investing much of Pennsylvania taxpayers’ money in international equity.

The holdings in China Mobile were overseen by Casey as the fund’s custodian as well as 10 other board members of the Pennsylvania State Employees’ Retirement System, including former Pennsylvania House members Nicholas J. Maiale, Michael F. Gerber, and Robert W. Godshall; and former Pennsylvania state senators Gibson E. Armstrong, Raphael J. Musto, and M. Joseph Rocks.

A spokeswoman for Casey’s office told The Post Monday that the senator should not be held responsible for the investment.


President Xi Jinping.

China Mobile is owned by China Mobile Communications Corp., which is a subsidiary of the People’s Republic of China.
Xinhua News Agency via Getty Images

“This story is a false attack — the investment in question was made before Bob Casey became State Treasurer in 2005,” she said.

“No one is tougher on China than Senator Casey. During his time in the Senate, he has fought to crack down on China’s currency manipulation, and against unfair trade practices and US corporations that invest in China at the expense of American workers,” she added.

The spokesperson did not respond to a follow-up question about whether Casey approved further investments in China Mobile in 2006.

Casey has touted his experience handling the Pennsylvania state employee retirement fund, both as treasurer and in his eight years as the commonwealth’s auditor general.


Chinese President Xi Jinping

Chinese President Xi Jinping
Getty Images

“As Auditor General and State Treasurer of Pennsylvania, I took a particular interest in the two state public pension funds, for teachers and public employees, which are traditional defined benefit plans,” Casey said in a July 2008 press release.

“As Auditor General, I audited both funds and as State Treasurer, I served as a trustee for both funds. It gave me an insight into the benefits of well-run defined benefit plans, both to retirees and to our economy as a whole,” he added.

Additionally, Pennsylvania’s pension fund paid $15,315 to the state-owned Bank of China for trading broker commissions under Casey in 2006.

Most state employees are required by law to enroll in the Pennsylvania State Employees’ Retirement Code, which handles benefits for around 240,000 employees and retirees, according to its website.

Employees gain a lifetime pension after contributing roughly 6% to the fund for a minimum of five years, or at least 10 years if they were hired after Dec. 31, 2009.

Casey was succeeded as state treasurer by Robin Wiessmann, whom Biden chose last April to serve on the board of Amtrak.

Wiessmann is listed as state treasurer on the financial report for 2006, since the document was finalized in June 2007, six months after Casey was sworn in as a senator.

Casey’s financial ties have drawn scrutiny from ethics watchdogs in recent weeks, after The Post revealed his campaigns have paid more than $500,000 to a printing company owned by his sister and brother-in-law.

Meanwhile, as Congress weighs a ban on TikTok over national security concerns, Casey is one of the few federal lawmakers with an account on the Chinese-controlled social media app.


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