ESG Barometer 2023, The ESG status of the European funds market
ESG Barometer Report
MainStreet Partners, the London-based independent ESG Advisory and Portfolio Analytics firm, announces the launch of its 2023 ESG Barometer report.
The 2023 ESG Barometer provides a clear picture of the analytics of ESG research across a large universe of funds and looks at the SFDR classification and recent European ESG Template (EET) data points. It also explores ESG and sustainable strategies by asset class, sub-asset class, and by size of asset managers.
This comprehensive annual report is the result of analysis conducted by MainStreet Partners’ Fund Research Team, drawing on its proprietary ESG database of more than 5,800 funds/ETFs and over 64,000 individual ISINs, covering more than 300 Asset Managers with AUM totalling €4.4 trillion (£3.8 trillion).
1. Many funds with Article 9 status under the EU SFDR are not currently meeting the highest focus on sustainability that would be expected.
- Analysing the EET data*, we found that over 90% did not have or did not disclose environmental targets.
- Around one-third of Article 9 funds stated a minimum sustainable investment percentage of 30% or less.
- This analysis demonstrates that EET data is still unreliable and we expect a significant improvement in quantity and quality of EET data in the coming months.
[*The European ESG Template, EET, is the standardised way to exchange ESG data.]
2. There has been a clear shift in funds moving from Article 6 to Article 8 status, as a result of asset managers changing their ESG approach to process, disclosure and regulatory classification.
- Overall, the number and percentage of Article 9 funds in MainStreet Partners’ universe have remained steady, whereas there has been a clear shift from Article 6 to Article 8 (Article 6: 75% in 2021 vs 50% in 2022).
3. Medium-to-Large Asset Managers continue to score slightly higher in ESG Ratings (on average) than Smaller/Boutique Asset Managers.
- Within our framework of analysis, Asset Managers facing issues around greenwashing accusations, and risk management and compliance issues were penalised in their ESG Rating. The sub-pillars “Institutional Credibility” and “Reputation” were the weakest points of these Asset Managers.
- Notably, though, the difference between Larger and Smaller Asset Managers has narrowed in the past year.
4. Emerging markets funds are at a disadvantage compared with their developed market peers and consistently scored lower in ESG Ratings (~10% lower for Article 8 & 9 funds).
- This is partly due to investee companies receiving lower ESG Ratings.
- However, the lack of data and disclosure from emerging market regions makes ESG analysis generally more difficult. If the increasing requirements by regulators for data and disclosure outpaces improvements made by companies that operate in these regions, we may see this trend persist or even worsen.
About MainStreet Partners
MainStreet Partners provides independent ESG Advisory and Portfolio Analytics to Asset Managers, Wealth Managers, Investment Banks and Institutional Investors, a trusted partner in helping them meet sustainability requirements at portfolio level.
- Portfolio Analytics – providing a holistic approach to ESG data analysis such as: transparent and detailed Fund ESG Ratings, assessment of clients’ portfolios to enhance their ESG profile and aligning them with “green” regulations.
- ESG Investment Advisory – offering bespoke investment solutions to create ESG multi-asset and multi-manager models with mutual funds, single stocks and bonds. The company develops products with its partners which target United Nations Sustainable Development Goals and/or thematic investments.
MainStreet Partners is based in London and regulated by the Financial Conduct Authority.