ESG Fund Downgrades Top $125 Billion

A few weeks ago we wrote about the FCA’s Consultation Paper (CP22/20) as they seek to hit the right balance between the protection of consumer interests and control over the asset investing industry to properly label any multi-asset fund. The FCA’s consultation is far reaching, for example whereas Article 8 (the European SFDR classification) accepts ESG-integrated products, as well as negatively screened approaches, the FCA proposal (CP22/20) proposal does not. For asset managers to gain a clear picture on suitability obligations, some standardisation will be required that will help both themselves and their clients.

But whilst the FCA proposals are far reaching, they do seem to be a little behind the curve in terms of preparedness. Movements are already underway by asset managers as they look to align funds under management with Article 8 (Transparency of the promotion of environmental or social characteristics in pre‐contractual disclosures, Directive EU2019/2088). Reported recently in Forbes by Greg Ritchie, the total ESG Funds that were now downgraded by the top asset managers amounted to $125 Billion in funds, with Axa adding to that tally following [its] announcement that it would affect $21 billion in funds under [its] management.

Whilst the reclassifications will draw complaints from investor groups, the influence of regulatory changes highlight a societal process that promises to strengthen the sustainable impact of capital markets, based on an industry wide realignment from voluntary promises to one in which economic behaviour will be driven through the regulatory frameworks.