Analysis reveals regulatory challenges for sustainable funds in meeting global standards
An analysis conducted by Clarity AI, a sustainability technology platform, reveals that the majority of funds labeled as sustainable would need to undergo significant changes to meet regulatory requirements in the U.S., U.K., and European Union (EU).
The study focused on regulatory proposals from European regulators and found that only 4% of sustainable funds would be able to comply with all three regulatory regimes. This highlights the divergent interpretations of key concepts such as environmental, social, and governance (ESG) and sustainability among different regulators.
The analysis specifically points to the proposed regulations by the European Securities and Markets Authority (ESMA), which set minimum thresholds for Article 8 funds, also known as light green funds. These funds would be required to allocate a certain percentage of their assets in alignment with their names, follow sustainability-related criteria outlined in the Sustainable Finance Disclosure Regulation, and adhere to benchmarks aligned with the Paris Agreement. However, the analysis indicates that many current Article 8 funds do not plan to meet the proposed thresholds, indicating a lack of alignment between the ESMA proposal and regulations in the U.K. and the U.S.