(Bloomberg) - ESG funds representing more than $1 trillion in assets aren’t delivering on their stated environmental, social or governance goals, according to one of the main researchers tracking the market.
A forensic analysis of the industry resulted in the ESG tag being removed from more than 1,200 funds, or roughly one in five, according to Morningstar Inc.’s classification system. The findings feed into concerns that asset managers are still making misleading claims on the extent to which their allocations are doing the planet or its inhabitants any good.
Hortense Bioy, global head of sustainability research at Morningstar, told Bloomberg that sustainability tags were taken off “funds that say they consider ESG factors in the investment process, but that don’t integrate them in a determinative way for their investment selection.”
Bioy said funds that used “light or ambiguous ESG language” were targeted in the purge.
The correction marks something of a line in the sand for an investment trend that has enjoyed stratospheric growth, much of which took place before regulations were in place. It also offers a glimpse of the scale of potential greenwashing as the ESG label goes from niche to mainstream.
While Morningstar’s definitions don’t reflect the way fund managers themselves market their products, there are signs the industry is also capable of self-correcting. Before the 2021 introduction of Europe’s anti-greenwash rulebook -- the Sustainable Finance Disclosure Regulation -- asset managers in the region removed the ESG label from $2 trillion worth of funds, according to the Global Sustainable Investment Alliance (GSIA).
Morningstar says it expects its analysts to catch more funds that don’t merit an ESG tag as they continue to examine industry data.
By Frances Schwartzkopff and Saijel Kishan
