Are "sustainable" funds living up to their climate expectations?

A new and excellent study by the European Central Bank answers the question ! (link below). Among the authors is Dilyara Salakhova from the Banque de France.

The scope includes 1,838 European-domiciled equity funds practicing active management, half of them without an ESG strategy (Article 6).

To make their choice, savers have references : the 5 Morningstar strategies (leading global agency), SFDR articles (european regulation), fund names. But, according to the authors, these classifications provide poor information about fund contents ! In short, compasses that don't properly point North...

To make the study objective, the researchers took the right direction and used 3 criteria:

(i) the carbon intensity of financed activities,

(ii) the carbon footprint of portfolios,

(iii) their investments in companies with ambitious scientifically validated targets (Science-Based Targets, SBTs).

Their results :

1. Although the greenest funds — such as Green Tech, Low Carbon, and those under SFDR Article 9 — invest more in low-carbon sectors and less in fossil fuels, their overall carbon footprints are not significantly lower than conventional funds.

2. Nevertheless, Morningstar Low Carbon funds and SFDR Article 8 funds, for example, tend to invest in less carbon-intensive companies within the same sectors and show more substantial emission reductions over time.

3. No consistent evidence that ESG funds allocate more capital to companies with ambitious SBT commitments.

4. A subset of funds appears to practice "green-hushing," avoiding sustainability labels despite greener portfolios.

So yes :

• the profusion of sustainability definitions muddies the waters,

• climate impact is often vague

• in doing so, many funds labeled sustainable fall into "greenwashing"

• ambitious sustainable funds would weigh much less (10-15% ?) than the 50% of sustainable assets (SFDR Articles 8 and 9 funds).

This study encourages going much further than the current reform on fund names. At Axylia | B Corp, we advocate for quantitative and scientific indicators. This has been our conviction for 6 years, leading us to calculate a carbon bill then deducted from the company's profit to derive the Axylia Carbon Score.

Indeed, for ESG investment to play a credible role in the climate transition, it must be anchored in robust sustainability criterias : transparent, measurable and accountable. And manageable !

#SustainableFinance #ESG #GreenFinance #EcologicalTransition #ECB #Investment

Study : https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp3121~47d80e073f.en.pdf