Overview
As an investment vehicle for ESG securities and ESG bonds, ESG funds have become the core products of the global asset management industry. The naming and information disclosure of ESG funds have also become the focus of regulators.
Although sustainable funds and ESG funds are already well known to investors, there is still a lack of standard fund classification rules around the world. At present, the European Sustainable Financial Disclosure Regulation is the most widely used and standardized classification rule.
ESG Funds Distribution
The distribution of global ESG funds shows an imbalanced characteristic. Using ESG fund size as an indicator, European ESG funds account for about 80% of the total ESG funds, while American and Asian ESG funds account for 10% respectively.
The internal classification of ESG funds also exhibits imbalanced characteristics, for example, Article 8 funds based on the European Sustainable Financial Disclosure Regulations account for 95% of the total size of ESG funds in Europe, while Article 9 funds only account for 5%. This is partly due to the strict conditions of Article 9 funds, and partly due to asset managers relabeling some Article 9 funds to avoid greenwashing.
According to PwC, the majority of ESG funds are still actively managed (88%), with a relatively low proportion being passively managed. As the market’s emphasis on index investment increases, passively managed funds may increase in the future.
ESG Funds Naming
Against the backdrop of increasing market attention to the issue of greenwashing, regulatory agencies have established numerous rules for the naming of ESG funds. For example, the European Securities and Markets Authority requires ESG funds to invest at least 80% of their funds in the ESG field when using related terms such as environment, society, governance, and sustainability, and to exclude controversial listed companies.
In fact, the regulation for ESG fund naming does not exist independently. The disclosure of investment goals, investment methods of ESG funds also requires guidance. The effectiveness of these guidelines is established in the development of a series of ESG regulations such as sustainable information disclosure for enterprises and sustainable classification of economic activities.
ESG Funds Performance
Since 2019, ESG funds have outperformed traditional funds. In 2023, the median investment return of ESG funds is 12.6%, while the median investment return of traditional funds is 8.6%.
In passive investment, ESG ETFs also perform better. In 2023, the median investment return of ESG ETFs is 10.5%, while the median investment return of non ESG ETFs is 10.1%.
When facing systemic risks in the market, ESG funds still perform better. The European Securities and Markets Authority analyzes funds during a significant market downturn in March 2020 and finds that ESG funds performed relatively better in both the downward and recovery stages.
Is there a situation where ESG funds are underperforming traditional funds? After a significant increase in global energy prices in 2022, the energy industry allocated by traditional funds performed better than the clean energy industry allocated by ESG funds. This phenomenon only occurred once in the five years from 2019 to 2003.
Millani Releases Institutional Investor ESG Survey Report
Global consulting firm Millani released an institutional investor ESG survey report
Alliance Bernstein Finds Investment Opportunities in ESG Controversies
Alliance Bernstein (AB) found that there are potential investment opportunities in ESG controversies
Fitch Releases Second Quarter ESG Trends Report
Fitch released the ESG Trends Report for the second quarter,
Morningstar Releases 2023 Q2 SFDR Funds Report
The international research institution Morningstar released the second quarter European SFDR Funds report
Goldman Sachs Launches Impact Fund and Green Bond Fund
Goldman Sachs Asset Management (GSAM) announced the launch of a new Impact Fund and Green Bond Fund
Harvard University Releases Global Sustainable Investment Report
The Harvard Law School Forum on Corporate Governance released the Global Sustainable Investment Report
SEBI Proposes Regulations on ESG Mutual Funds
SEBI approved new ESG mutual funds to meet the growing demand for green financing
EFAMA Releases a Report on Fund Market under SFDR
The European Fund and Asset Management Association (EFAMA) has released a report on fund market under SFDR
Amundi Launches Net Zero Strategy ESG Funds
International asset management company Amundi has announced the launch of a series of net zero strategy ESG funds, aimed at investing in companies that have performed well in low-carbon transition and striving to achieve the global net zero emissions target by 2050
Eurosif Responses to ESG Funds Naming Rules
The European Sustainable Investment Fora (Eurosif) issues a document giving comments on the guidelines of the European Securities and Markets Authority (ESMA) on the naming of ESG funds
EFAMA Commented on ESG Funds Naming Rules
The European Fund and Asset Management Association (EFAMA) issues a report expressing its opinion on the ESG funds naming rules issued by the European Securities and Market Authority (ESMA)
SEBI Issues Consultation Paper on ESG Disclosures, Ratings and Investing
The Securities and Exchange Board of India (SEBI) issued a consultation paper to solicit opinions on the ESG disclosures of listed companies, the ESG rating of the securities market and the ESG investment in the asset management industry, so as to promote a more transparent and simplified development
Application and Challenges of Pension Funds in TCFD
Pensions for Purpose is committed to promoting impact investment action of pension funds. This study shows the progress of pension funds in climate-related financial disclosure and their actions towards governance, strategy, risk management, metrics and targets of the TCFD framework