Those wishing to make environmentally sound investments could be startled to discover that many funds, labelled ‘sustainable’, ‘green’ or other such terms, continue to invest heavily in corporate polluters, the very entities responsible for climate change.
Investigations by the non-profit organisation Follow The Money and the Belgian platform Investico, along with a coalition of European media organisations including EL PAÍS, show that, out of the funds that have ‘green’ branding, 43% of those in Europe tend to invest in companies dependent on most of their income from fossil fuels. The figure for Spain is 47%.
That flies in the face of the hopes of investors that they’re pouring money into making a better tomorrow. The European Securities and Markets Authority (ESMA) warns that ‘fund names should not be misleading’, among other things.
Even though ‘sustainable’ funds only invest a small amount overall in fossil fuels (on average less than 6 per cent), these funds represent billions of euros invested in these sectors. Some of the world’s biggest asset managers, including Blackrock, Amundi and HSBC, also manage individual funds that invest more than 10 per cent in environmentally harmful energy.
Growing Regulation, Limited Success.
The rise in sustainable investing reflects growing concerns about climate change, but there is a gap between business definitions and public perception. Initial rules, such as the Sustainable Finance Disclosure Regulation (SFDR), aimed to increase transparency but did not impose tight investment limitations. This enabled some funds with false names to continue investing in fossil fuels.
Recognising the problem, the European Commission is rewriting the SFDR and attempting to establish clear categories for what can and cannot be considered a sustainable investment. ESMA has also established guidelines stating that funds cannot invest extensively in fossil fuels if their names are sustainability-focused.
Need for Clarity
Experts emphasise the need for transparent labelling to avoid "greenwashing." While the role of fossil fuel firms in the energy transition is debatable, investors demand to know where their money will ultimately end up. Pending legislative amendments aim to improve labelling accuracy, while consumer organisations advocate for even stricter steps to guarantee that sustainable investments meet their intentions.
