ESMA finds increase in use of ESG-related language in the EU fund industry
The European Securities and Markets Authority (ESMA), the EU’s financial markets and securities regulator, today publishes an article exploring the use of language related to environmental, social and governance (ESG) factors in EU investment fund names and documentation.
Tackling greenwashing is one of the key priorities in ESMA’s Strategy on Sustainable Finance, and in this respect its assessment of how investment funds signal themselves (via their name or via their documents) is an important first step in the detection and monitoring of potential greenwashing.
In this study, ESMA shows that the share of EU UCITS investment funds with ESG words in their name has increased from less than 3% in 2013 to 14% in 2023. The article further highlights that fund managers tend to prefer using generic language (‘ESG’, ‘Sustainable’) rather than more specific words. This can make it more difficult for investors to verify that the fund portfolio is in line with the name.
To carry out this study ESMA has also used natural language processing techniques to examine the use of ESG-related language in more than 100,000 fund documents. As expected, funds with ESG words in their names, and as well as funds disclosing under Article 9 of the Sustainable Finance Disclosure Regulation (SFDR), tend to use relatively more ESG words in their documentation. However, the results also point to differences between the document types (regulatory document vs. marketing material), suggesting that fund managers adapt their communication based on the expected types of readers.
Background
This article contributes to ESMA's on-going monitoring efforts in the area of greenwashing risks, in particular in the investment management sector, and supports on-going regulatory efforts regarding ESG disclosure requirements for investment funds.
Webinar
ESMA is organising a public webinar on the article and its findings. During the webinar, authors of the article will have a presentation which will be followed by a Q&A session.
The webinar will additionally include presentation on the European sustainable debt market, with emphasis on the discussion if issuers benefit from an ESG pricing effect.
The webinar will be held online on Wednesday, 18 October 2023 from 10:30 to 11:30.
Interested persons are welcome to register by Monday, 16 October 2023 at 12:00 via the following link.