Asset Managers Quietly Drop 'Sustainable' Labels Amid Regulatory Scrutiny

Asset managers are navigating a shifting landscape as they cautiously remove the word "sustainable" from the names of their funds due to increasing regulatory and reputational concerns. According to data from consultancy Broadridge, 44 sustainable funds made this move during the first half of 2023, marking a stark contrast to 2022 when 99 funds added "sustainable" to their names.

One primary driver behind this trend is the ambiguity surrounding the calculation of sustainable investments under the Sustainable Finance Disclosure Regulation (SFDR). The lack of specific methodology has left many industry participants uncertain about how to accurately label their funds. Additionally, an EU consultation on sustainable fund names has created further uncertainty.

Dutch lender ABN Amro's asset management arm, for example, removed "sustainable" from the names of 14 funds in January 2023, citing the need for more clarification from the European Securities and Markets Authority (ESMA). ESMA initiated a consultation in November 2022 to introduce guidelines for using sustainability-related terms in fund names, proposing that a fund could only use ESG-related words if 80% of its investments met ESG criteria.

Société Générale also adopted a cautious approach by temporarily removing "sustainable" from the names of their Article 8 and Article 9 funds. Meanwhile, UBP Asset Management changed the names of seven funds to "responsible" in December 2022 to circumvent potential misunderstandings.

Detlef Glow, head of research at Refinitiv Lipper, noted that ESMA's stricter stance on sustainable products under SFDR has pushed firms to reconsider their fund names. Raza Naeem, a partner at Linklaters, emphasised the need for firms to avoid inadvertently portraying their funds as sustainable investments, especially given the regulatory scrutiny on greenwashing.

This trend, referred to as "green hushing" or "green bleaching," reflects the industry's response to evolving regulatory definitions and the need to manage reputational risks. As ESMA's new naming guidelines are expected to be implemented in the third quarter of 2023, we can anticipate further changes in fund nomenclature.

In conclusion, the asset management industry's quiet removal of "sustainable" labels from fund names underscores the challenges posed by evolving regulations and the ongoing struggle to define and market sustainable investments. As regulatory clarity emerges, the industry may revisit these changes to better align fund names with their investment strategies.

 Written by Sukru Ege Karabiyik