As a market observer, I have seen that no other topic has got so much attention from all parts of the investment ecosystem over the course of the last three years than ESG investing. From a European perspective, it is clear that the “Action Plan on Financing Sustainable Growth” launched by the European Commission (EC) is the main driver for the increased interest from investors in ESG investing. I don’t think that ESG would still be a niche topic if the EC wouldn’t have put so much pressure on investors and fund promoters, but the launch of an action plan with clear deadlines and start dates has shifted the focus of all industry participants dramatically. It is noteworthy that not all of the actions that have to be implemented by the financial services and investment industry are aligned with each other or other initiatives outside the action plan, which means that the financial industry has to fulfill multiple regulatory specifications.
The rising demand for ESG-focused products led to a wide range of new product offerings in the whole investment ecosystem as mutual funds with a sustainable investment objective need, for example, additional data sets—the so-called non-financial data—compared to their conventional peers. Therefore, it is not surprising that data vendors and specialized data providers started to collect new data and increased their offerings accordingly. The same is true for the index business, as more demand for ESG related indices, for example for new ETFs, led to new index families and also to a higher demand for non-financial data to select the constituents of those indices.
Even as the majority of these activities seem to foster the acceptance and usage of sustainable investment criteria in all parts of the financial industry, some can be seen as so-called greenwashing since it seems like the respective organizations want to take profits from the trend toward sustainable investing without taking the necessary actions. With regards to greenwashing, investors need to implement measures into their fund selection process which will help them to identify products that are in line with their investment goals and to avoid greenwashing.
That said, there is no common definition of a sustainable investment approach that would fit all investors. Therefore, ETF and fund promoters need to communicate their approaches with regard to their sustainable investing strategy very clearly so that all investors can make informed decisions. Additionally, I expect an increasing demand for transparency on the measures and actions taken to translate the prospectus language into the respective ESG strategies from both investors and regulators. Therefore, I expect that the trend towards ESG investing will increase the transparency within the European fund industry.
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