November 2024 Newsletter

3 Dec

Here is our latest selection of ESG stories from November.

ESAs Publish PAI Disclosures Annual Report

The European Supervisory Authorities (ESAs) have released their 2024 report of Principal Adverse Impact (PAI) disclosures under SFDR. PAIs are mandatory for firms with more than 500 employees. The report highlights improvements in the accessibility and quality of PAI information for retail investors. However the adoption of PAI disclosures remains limited, with many firms failing to justify their non-disclosure.

AIMA Publishes ESG Fund Naming Rules Q&A

AIMA has released a comprehensive Q&A document to clarify ESMA’s ESG fund name guidelines. The document outlines the scope of the rules, including their applicability to non-EU funds marketed in the EU, fund range names, and documentation. It also provides guidance on compliance expectations for Paris-Aligned Benchmarks (PAB) and Climate Transition Benchmarks (CTB) and explains how exclusion criteria apply to short positions, green bonds, and private market strategies. Additionally, the Q&A addresses key interpretive issues, such as grandfathering provisions for closed-end funds, the 80% minimum investment threshold, and the definition of ‘meaningful investments.’

FCA Adds SDR Pre-Contractual Disclosure Examples

The UK FCA has updated its Sustainability Disclosure Requirements (SDR) and investment labels regime to include pre-contractual disclosure examples, offering firms practical guidance on best practices. In its updated guidance, the FCA identified recurring shortcomings in sustainability disclosures. These include poor alignment between asset selection processes and sustainability objectives, insufficient justification for the criteria defining sustainability, and a lack of transparency regarding asset selection decisions. Specific issues were raised about the Sustainability Improvers label, including a lack of evidence to substantiate claims about assets' sustainability and inconsistencies or omissions in short- and medium-term targets compared to longer-term goals.

SEC Fines Invesco $17.5M for Misleading ESG Claims

The U.S. Securities and Exchange Commission (SEC) has fined Invesco Advisers, Inc. $17.5 million for overstating its use of ESG principles in investment decisions. From 2020 to 2022, Invesco claimed that 70% to 94% of its assets were "ESG integrated," but this included funds, such as passive ETFs, which did not actively consider ESG criteria. Furthermore, the SEC emphasised the absence of any formal policies defining ESG integration. Invesco has since stopped publishing ESG integration reports and settled the case without admitting or denying the charges. The charge comes as part of the SEC’s broader efforts to address greenwashing and inaccurate ESG claims, following a $4 million penalty for WisdomTree earlier this year.

Article 8 Funds See Record Inflows

In Q3 2024, funds classified as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR) saw a substantial rise in net inflows, attracting €38 billion, up from €26.5 billion in Q2. This growth was largely driven by actively managed funds, particularly in fixed-income strategies. Together, Article 8 and Article 9 funds now hold €6 trillion in assets, representing 61% of total EU fund assets. Despite strong inflows into Article 8 funds, Article 9 funds have faced challenges, reflecting difficulties for darker green strategies. The number of new Article 8 and Article 9 fund launches is down slightly though still makes up 56% of all new EU fund launches.

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