From Morningstar: 2024-08-29 10:03:00

In the US, ESG funds faced challenges with outflows of $8.8 billion in Q1 2024, the worst quarterly performance on record. Major players like Invesco, J.P. Morgan, Pimco, and State Street exiting the Climate Action 100+ initiative signal a shift away from sustainability.

Contrastingly, Europe thrives as the world’s largest sustainable funds market with 84% of assets in Q1 2024. In Q2 2024, the region attracted $11.8 billion, up from $8.4 billion in the previous quarter, showcasing continued growth and interest in sustainability investments.

Europe’s regulatory landscape around ESG is robust, driven by the Sustainable Finance Action Plan which aims to direct capital flow to create a sustainable economy, incorporate sustainability into risk management, and enhance transparency. Regulations like the EU Taxonomy and SFDR play a crucial role in promoting transparency and combating greenwashing.

The EU Taxonomy Regulation acts as a classification tool to determine environmentally sustainable economic activities, providing a common language for financial market participants to prevent greenwashing. This regulation requires reporting on alignment with six environmental objectives to ensure sustainable investments.

The SFDR, a key component of the EU Action Plan, mandates disclosure of sustainability risk considerations, ESG metrics, and management of potentially harmful decisions. It aims to elevate the quality of investment products, enhance transparency, and prevent greenwashing in sustainable funds.

The UK SDR introduces voluntary product labels for asset managers to apply to investment vehicles, aiming to reduce greenwashing through specific anti-greenwashing rules. The four labels distinguish assets based on their focus on sustainability, potential for improvement, impact on sustainability issues, or mixed sustainability goals.

The TCFD framework, endorsed by nearly 5,000 organizations globally, calls for reporting on governance, strategy, risk management, and metrics related to climate-related financial disclosures. This framework seeks to enhance transparency around climate risks and performance metrics for organizations.

Future ESG regulations emphasize the importance of data in driving sustainable investment strategies and regulatory compliance. As data quality improves over time, regulations evolve to enhance transparency, combat greenwashing, and meet changing client demands. Access to robust data is crucial for successful ESG investing strategies.



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