The European Securities and Markets Authority (ESMA) has warned that investment funds claiming to support to the UN Sustainable Development Goals (SDGs) could be mis-selling.
The EU supervisor assessed 187 funds which claimed – via their names, investment strategies or Key Information Documents – to contribute to the 17 goals, which range from increasing equality and reducing poverty, to protecting the world’s oceans.
Those funds had a combined €74bn of assets under management in September 2023, a figure that had tripled since 2020.
ESMA compared the assets within those funds against a universe of companies signed up to the UN Global Compact, and the performance of sovereigns according to an SDG Index created by the UN.
It also used Morningstar data on Principle Adverse Impacts, which funds now have to disclose if they are covered under the scope of the EU’s Sustainable Finance Disclosure Regulation.
Its findings, published at the end of last week, concluded that “regardless of the different frameworks used for measurement” the 187 funds do not, on average, hold significantly more SDG-aligned issuers.
“This raises questions as to whether funds claiming to contribute to the SDGs are actually fulfilling their promise to investors”
It also found that, while SDG funds have slightly lower Scope 1 emissions than non-SDG funds, they “seem to have more than 50% more” Scope 3 emissions.
“Our results highlight some of the challenges in assessing real-world impact claims and show that SDG funds do not significantly differ from non-SDG counterparts or ESG peers regarding their alignment with the United Nations SDGs,” the report explained.
“This raises questions as to whether funds claiming to contribute to the SDGs are actually fulfilling their promise to investors,” it added.
The article continued: “Arguably, claiming to contribute to the SDGs should require taking steps beyond simply excluding firms based on sectorial or geographical characteristics. It should also consist of the active and careful evaluation and selection of assets that have been proven to contribute concretely to specific SDGs.”
ESMA has already highlighted the misuse of the SDGs in a broader progress report on greenwashing.
Last week’s article pointed out that, while the findings could feed into that work, it was important to note that the ecosystem for SDG funds was still immature and lacked any agreed methodology or standards for reporting against the 17 goals.
It said that “there is still room to establish clearer requirements for these instruments” and that further monitoring was necessary.
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