June 15, 2022

SERVICES  |  RESEARCH  |  EVENTS  |  WEBINARS  |  BLOG  |  ARCHIVE


Is Your ESG Mutual Fund or ETF Really "Green" – More Disclosure May Be Coming

What is it about an investable product –  a mutual fund, an exchange traded fund (ETF) –that would qualify it as an “ESG,” “green” or “sustainable” investment offering to retail or institutional investors? That’s a question getting much more attention recently.

 

S&P Global has issued a report that says only 12 percent of so-called “green” or “environmental” investment funds are on track to meet the global climate goals agreed to at the Paris Agreement / COP 21 meetings in 2015. These goals included trying to keep the global temperature increase this century to below 2 degrees Celsius above pre-industrial levels and to pursue limiting the increase even more to 1.5 degrees Celsius.

 

In our Top Story we are sharing some analysis of S&P Global’s report by Mark Segal in ESG Today (he’s the founder of the web site). S&P Global looked at about 12,000 equity funds and ETFs with $20 trillion in total market value. Key findings:

 

about 300 funds (with $350 billion total valuation) used “green” in their name or investment objectives
an analysis of 17,000 public companies owned by the total universe of 12,000 funds (using the S&P Global TruCost Paris Alignment Data) showed that only 11% were really aligned with the Paris Agreement goals
in the smaller universe of 300 “green” funds, only about 12% of the public companies owned by those funds were on track to meet Paris Agreement goals.

 

S&P Global’ s conclusion: “Our analysis points to a systemic issue. Few funds, even those that describe themselves as using green or climate-specific language, are on track to meet the goal of the Paris Agreement. Understanding the trajectory is an important step toward planning for a low-carbon future.” S&P Global noted that some funds are screening out fossil fuel companies for portfolios, include renewable energy companies, and some are engaging with portfolio companies to urge the firms de-carbonize their operations.

 

The marketing of mutual funds and ETFs as “ESG” and “green” has come under increased scrutiny by the Securities & Exchange Commission (SEC), which is focused on “enhancing ESG investment practices” of certain capital market players. The agency in May proposed amendments to rules and reporting requirements of investment advisors and investment companies that manage mutual funds and ETFs to “promote consistent, comparable, and reliable information for investors” about funds’ and advisors’ incorporation of ESG factors.

 

The proposed rule would aim to categorize types of ESG investment strategies and require funds and advisors to be more specific in disclosures (such as in prospectuses, annual reports, brochures) to inform investors about ESG strategies being pursued. Funds focused on the consideration of environmental factors would be required to disclosure the greenhouse gas (GHG) emissions associated with the companies held in their portfolios.

 

Funds that use proxy voting and that engage regularly with corporate issuers would be required to disclose their voting and engagement with companies on ESG-related matters.

 

Morningstar, which rates sustainable mutual funds among the thousands of funds rated by the firm’s analysts and its Sustainalytics unit, has highlighted challenges that fund companies may face if the SEC rules are adopted: “This year has been difficult for many ESG funds after years of solid performance,” writes Morningstar’s Katherine Lynch, “ but a handful of strategies have been able to outperform.” Which ones? Those holding energy stocks, which some investors in ESG try to avoid. Energy stocks are now outperforming, and most sustainable funds hold little or no oil companies in their portfolios because of the connection of oil and gas consumption and climate change.

 

The conversation about “sustainable investing” and the criteria used by mutual fund management companies is sure to get more complicated in the days ahead. The G&A team will continue to stay abreast of developments and keep you updated on the latest changes to disclosure requirements.

 

G&A Blog Feature

ESG from a Corporate Vantage Point– Anniversary Update
Important Perspectives shared by Pamela Styles, Fellow G&A Institute

 
Top Stories
Sustainability Standard Setters & Policy Makers
SEC, SASB, GRI, IIRC, FSB-TCFD
More Stories
ESG / Sustainable & Responsible Investment
Asset Owners & Managers, Ratings Agencies
More Stories
Corporate Sustainability / ESG
Disclosure, Reporting, Corporate Initiatives
More Stories
Stakeholders That Matter
Developments, Trends, Corporate Actions Affecting Stakeholders
More Stories
Global Sustainability
News & Developments of Note
More Stories
Sustainability Data in Focus
Developments in Data, Research, Trends
More Stories
U.S. / Biden-Harris Climate Actions
Updates from and about Washington, DC
More Stories
Eyes on Europe
ESG Regulations in Europe
More Stories
These feeds are provided for G&A Institute in partnership with 3BL Media. 3BL Media distributes press releases, blogs, videos, podcasts, reports, newsletters and more to the growing audience of stakeholders interested in Corporate Social Responsibility (CSR) and Sustainability. Visit 3BLMedia.com for more.  

The U.S. Tire Industry Seeks to Better Understand and Mitigate Road Wear Particles
Article from TriplePundit

MAC Cosmetics Canada is Make-Up Partner at Indigenous Fashion Arts Festival
Article from MAC Cosmetics

Heroes Work Here: Meter Reader Administers CPR To Save a Life
Article from Public Service Enterprise Group (PSEG)