Do ESG funds live up to their names?
The European Securities and Markets Authority (ESMA) analysed more than 36,000 funds' names and documentation to understand how ESG claims actually reflect sustainable practices in their report "ESG names and claims in the EU fund industry".
Their main conclusions include:
- Funds increasingly tend to integrate ESG-related terms into their names, with a focus on less-specific words rather than targeted environmental or social ones.
- Investors show a high and consistent appetite for funds with ESG-related terms in their names, compared to those without.
- Funds using ESG-related language provide more extensive ESG disclosure, and funds that are more recent or invest in equity tend to use more ESG language in their documentation than their peers.
- The share of ESG words found in the funds documentation is coherent with the fund SFDR disclosure type: article 6 funds use fewer ESG words than article 8, which themselves use fewer ESG words than article 9 funds.
- Funds exposed to retail investors make more ESG claims in standardised and regulated documents, but not in the others such as marketing materials.
These insights could be explored further by including non-English documentation and alternative investment funds to give a broader overview of market practices.