From Morningstar: 2024-06-18 06:40:00

The European Securities and Markets Authority (ESMA) has issued new rules to prevent “greenwashing” by funds using ESG or sustainability-related terms in their names. Funds must have at least 80% of investments aligning with sustainable objectives and comply with exclusion rules for benchmarks. New guidelines could affect nearly 15% of funds marketed in the EU.

Morningstar Sustainalytics report identifies potential impacted funds. Out of 4,300 funds with ESG terms in Europe, over 1,600 could breach exclusion rules. Companies like Dassault Systemes, TotalEnergies, and Neste are commonly held stocks facing scrutiny for activities like coal exports and oil refining. Portfolio adjustments may be necessary for 500 funds.

Notable companies like TotalEnergies and Tencent face significant financial impact due to exclusion rules, with TotalEnergies held by 356 funds totaling $3.5 billion. Tencent, a major Chinese internet company involved in gaming and social networking, is criticized for human rights violations. Analysis shows certain stocks like TotalEnergies and Tencent will be heavily affected financially by the exclusion rules.

The report also highlights companies popular in climate transition-related funds. BYD, known for electric vehicles and renewable energy, is prominent in funds with “transition” focus. Additionally, defense companies like Airbus SE, Safran SA, and Thales are common holdings in ESG funds due to exceptions for nuclear weapons involvement. Not all companies aligning with transition or social principles may be compliant with exclusion rules.



Read more at Morningstar: Your ESG Fund May Have to Sell These Stocks