Industry Updates

European regulator targets ‘credible labelling regime’ for ESG ETFs

EU’s Ecolabel for green products has seen ‘little progress’

Theo Andrew

a green and white circular object

The European Securities and Markets Authority (ESMA) is stepping up its attempts to create a credible labelling regime for sustainable funds in a bid to combat greenwashing.

Europe’s financial regulator said there was a need for a regime with “robust common criteria” to sit alongside Sustainable Finance Disclosure Regulation (SFDR), which is being used as a de facto marketing label by asset managers.

The European Union’s current fund labelling regime, the Ecolabel, is designed to steer investors away from the risk of greenwashing, however, it has had little impact so far with only 0.5%, or 16 funds, meeting the minimum threshold of 50% aligned to the EU’s sustainable taxonomy.

Speaking in Amsterdam, Natasha Cazenave, executive director at ESMA, said: “This project has unfortunately seen little progress so far probably because of its ambitious criteria.

“Nevertheless, we believe that labels for sustainable financial products are a useful tool to channel resources to finance the necessary shift of our economies, evidenced by the fact that the market is using Article 8 and Article 9 of SFDR as actual marketing labels.”

Disagreements remain over how stringent the Ecolabel requirements should be, with the regulator treading a fine line between credible ratings or boosting the number of funds using the label with watered-down metrics.

The regulator has previously hinted at launching a version of the label targeting retail financial products.

Cazenave said other labels were “in the pipeline” and should come to fruition later this year including a label for green bonds that will set out a voluntary standard regime aligned to the EU’s Taxonomy. 

Under the label, bond disclosures would need to be reviewed by a third party, likely to be ESMA.

It comes as ESMA said it will be publishing a progress report on its analysis of greenwashing in the market at the end of May, with the final report expected in May 2024.

Sustainable finance regulation in Europe is set for significant changes this year as regulators probe key elements of SFDR while a broader review of the regulation is also expected later this year.

Last month, the European Commission delivered its long-awaited clarification on SFDR which could lead to asset managers re-upgrading their Article 8 products to Article 9.

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