The recent decline in the number of ESG-related investment funds reflects a shift towards compliance and away from greenwashing, BEworks’ president and behavioural economist David Lewis has said.
Speaking on a new episode GlobalData’s Thematic Intelligence podcast, Lewis said the decline is due in large part to a September 2023 ruling by the US’ Securities and Exchange Commission (SEC) that 80% of assets in funds must be related to the title.
ESG has of late appeared to be a declining priority for the world of finance, both due to a declining number of fund names referencing it and the dwindling number of ESG mentions in company filings from within the sector.
Lewis, however, observed that greater scrutiny on how the term ESG can be used has led to a more thorough examination by firms as to whether their funds comply. He added that the renaming of funds away from ESG labels, as done by the likes of Morgan Stanley and UBS, aligns with the evolution and improvement of standards such as the ISSB, offering clarity on sustainability reporting.
“I think some of the investment managers have responsibly decided to rename their funds because they've realised under the emergent metrics, which provide more objectivity and less subjectivity, that perhaps your funds really shouldn't have been called ESG,” he said.
Viewing this as a step in the right direction for tackling greenwashing, Lewis noted that, following this decline, it is possible that some funds may be restructured or relaunched to comply with the emergent definitions.
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Lewis added that there remains a growing economic motivation for banks to consider climate change-related factors.
“A lot of these big banks aren't doing it because they're motivated by this charitable desire to save the planet, they're doing it because of economic fundamentals. It just makes sense,” he said.