EU-Regulated 'Sustainable' Funds Accused of Investing £14bn in Biggest Polluters
Confusion Over 'Sustainable' Investment Labels
Fast fashion brands, fossil fuel companies, and SUV manufacturers are receiving investments from funds in the EU that claim to be environmentally friendly. Over £14bn of these funds are being directed to the 200 biggest polluters. Investors are holding more than £68bn in these funds that allegedly follow environmental and social standards based on EU regulations. Shockingly, about one-fifth of these investments are from funds marketing themselves using eco-friendly terms.
Calls for Tighter Rules
Activists urge for stricter regulations to prevent greenwashing — misleading claims about environmental benefits. Lara Cuvelier from Reclaim Finance said, "Pension savers and the general public are being misled when it comes to sustainable finance."
Investigative Findings
An investigation by Voxeurop, the Guardian, and other media partners found alarming connections:
- The 25 biggest polluters in eight carbon-heavy sectors also received investments.
- Most investments in the top 200 polluters came from Article 8 funds aimed at promoting environmental or social goals.
- Article 9 funds, which focus on sustainable investment, contributed an additional £1.5bn.
- The European Securities and Markets Authority (ESMA) and other watchdogs are advocating for reform to tackle greenwashing.
Examples of Misleading Labels
The analysis revealed that £11.7bn went to the biggest polluters from funds labeled "ESG" (Environmental, Social, and Governance). Another £1.1bn came from funds with words like "clean", "net zero", and "Paris" in their names, referencing climate agreements.
Not Really Green: Top Recipients
Despite being branded as green, top recipients of EU-regulated funds include fossil fuel companies and carmakers producing larger vehicles. Xavier Sol from Transport and Environment criticized the practice, emphasizing the need for capital to support, not hinder, the green transition.
New Guidelines and Challenges
The ESMA has implemented updated guidelines prohibiting funds with significant fossil fuel investments from being marketed as green. Yet, these rules are not legally binding. Cuvelier stressed the need for stricter enforcement beyond mere guidelines.
Asset Manager Responses
Several asset managers defended their investments:
- Amundi: "The energy transition will only happen if all economic players change."
- Intesa Sanpaolo: "Investments in high-carbon sectors do not conflict with sustainability goals."
- Fidelity: "Positive engagement is more effective than exclusion or disinvestment."
Divestment Debate
Experts are divided:
- Campaigners argue that divesting from fossil fuels can pressure companies to go green.
- Critics say the financial impact might be minor, especially for profitable companies, asserting that campaigns are more useful for challenging these companies' social acceptability.
Jan Fichtner, a sustainable finance expert, advocates for the EU to focus on minimum standards for proxy voting and private engagements.
This article helps explain the complexities of sustainable investment and the urgent need for more transparent labels and stricter regulations. Understanding these issues can aid everyday investors, ensuring their financial contributions genuinely support environmentally friendly initiatives.
