Asset Managers Told Not to Reclassify ESG Funds Due to Risks
- Lawyers say new EU guidance may ‘upend’ ESG market practice
- Warning comes as hundreds of ESG funds risk downgrades
European Union (EU) flags fly outside the Berlaymont building in Brussels, Belgium, on Monday, Aug. 29, 2022.
Photographer: Cyril Marcilhacy/BloombergAsset managers are being told by their lawyers not to reclassify any ESG funds, as European clarifications of rules that are global in reach have the potential to “upend market practice.”
The concerns center mostly around a designation known as Article 9, which is the strictest category in the EU’s environmental, social and governance investing rulebook. To qualify, funds need to be 100% sustainable, with some leeway for hedging and liquidity. Some firms, including Pacific Investment Management Co. and Goldman Sachs Group Inc.’s NN Investment Partners, already changed the status of some of their funds. Analysts say hundreds more may follow.