European-based investors have shifted their focus from general ESG towards more specific sustainable funds, according to new research.
The research by Refinitiv Lipper suggests the market is becoming increasingly wary of ‘greenwashing’ marketing aimed at duping consumers into believing products have a greater positive environmental impact than they actually are.
The American analytics specialists looked at data related to ESG-related products in the nine-month period to September 2022.
They found that mutual and exchange funds classified as Article 9 products under the EU’s Sustainable Finance Disclosure Regulation (SFDR) had net inflows of 32.8 billion euros.
Article 9 products target bespoke offerings which have sustainable investments as an objective alongside an index designated as a reference benchmark.
Although Article 8 funds fall within the same SFDR framework, they are slightly different in nature and approach.
They promote a broader range of environmental or social characteristics and investment in firms which follow good governance practices.
The shift away from Article 8 funds was highlighted by outflows of €173 billion in the first nine months of the year.
Refinitiv’s head of EMEA research Detlef Glow explained that €93.1 billion - more than half of the Article 8 outflows - had come from ESG-related money market funds rather than equity vehicles.
But he said there was a clear indication investors have decided to “run away from greenwashing”.
Glow added: “In some cases, the wording on which ESG credentials are exactly used and how they are integrated in the overall portfolio management process was very vague.
“This led to greenwashing accusations as investors witnessed that some funds claimed to be ESG-related products but didn’t deliver on the expectations of the investors.
“That some funds may have overstated the usage of ESG credentials can also be seen in the number of funds which get downgraded within the respective SFDR classifications, and specially in Article 8 funds which get reclassified as Article 6 funds.
"Overall, it can be said the greenwashing accusations have impacted the trust of investors into the claims of asset managers”.
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