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Here’s how fossil fuel companies can get “climate-friendly” funds.
advertisementMillions of euros in “climate-friendly” investments are being given to major carbon emitters, a new study has revealed.
Fossil fuel giants BP, Chevron, Eni, Exxon, Repsol, Shell, and Total Energy are among the backers, according to the company. box europ.
The investigation scrutinized a green fund promoted by Eurizon Capital SGR, an asset management company affiliated with Intesa Sanpaolo, Italy’s largest bank.
Eurizon is one of a number of financial firms across Europe that take advantage of deceptive representations and loopholes in the EU regulatory framework to sell “green” financial products that actually finance big polluters. It is.
‘Green’ investments are not necessarily sustainable
Europe is the world leader in so-called “green” investment markets. But as Voxeurop’s research reveals, these investments are often neither sustainable nor responsible.
Some companies actually take advantage of vague regulations and ambiguous terminology to provide funding. fossil fuel companies.
Voxeurop analyzed four so-called “.SustainableFunding provided by Eurizon. The asset management company is one of many financial institutions offering ‘green’ products in Europe, managing €381 billion worth of client assets.
In 2022, Eurizon bought shares in seven fossil fuel companies worth more than €208 million, placing them in a portfolio it calls “sustainable and sustainable.” responsible investment‘.
As of April 2023, a total of $8.2 billion (€7.6 billion) of funds classified as green under EU rules have been awarded to fossil energy companies by Eurizon, according to data from financial market analyst Refinitiv.
Fossil fuel majors supported by Urizon are 195 mega oil and gas projects That alone would use up the remaining 1.5°C of carbon budget allowed under the Paris Climate Agreement.
How do fossil fuel companies raise green finance?
Repsol and other fossil fuel companies are “interested in participating in ‘green’ funds because that way they can get more money,” said ethics commission expert Fabio Moriterni. explains. finance Etika SGR Company.
By luring investors with vague language, these falsely sustainable funds have outperformed the market. They have guaranteed high returns by tracking an index that is completely devoid of sustainability goals.
“The European Commission’s rules leave investors with discretion when determining their sustainability goals,” Moliterni says. “This will make it easier for the market to flexibly adapt to changes in the asset management regulatory environment and allow for product differentiation.
“However, this does not seem to preclude greenwashing. In fact, many funds are still able to pursue strategies that are inconsistent with the Commission’s sustainability goals and instead reduce their environmental and social impact. They prioritize profits with little or no attention.”
Alessandro Messina, impact finance and sustainability expert at independent sustainable development company Avangi, said: “Fund managers try to follow EU regulations as much as possible, but there are no profitable products on the market.” “If you have it, you don’t need to put in that much effort,” he added. It’s to enforce the rules. ”
Eurizon’s pre-deal prospectus even described the fund in question as “sustainable and responsible.” investment”. This was despite the fact that they do not comply with the standards set out in the EU regulatory framework.
How is sustainable finance regulated?
of European Sustainability Reporting Regulation for the Financial Services Sectorcomes into effect in 2021 and imposes transparency standards that financial advisors must meet regarding pre-contractual documentation and green investments.
Investors are looking towards investments that can be classified by management companies into two shades: “green” (equivalent to Articles 8 and 9 regulations) or “gray”, i.e. without sustainability claims (Article 6). should be guided.
advertisement“Light Green” products must meet the criteria listed in Article 8 and promote “environmental and/or social properties”. However, there is no clear definition of these characteristics.
This loophole allows managers to classify a fund as light green, either according to their own principles or according to a rating agency’s assessment, even if the fund contains environmentally unsound companies.
The European Securities and Markets Authority (ESMA) says only that light green funds have lower sustainability ambitions than ‘dark green’ funds. The latter should aim for 100% sustainable investments. This means that they must not cause significant damage to the environment and must facilitate the reduction of carbon emissions.
Light green fund and dark green fund
The difference between the two terms ‘products that promote environmental performance’ (light green) and ‘sustainable products’ (dark green) may seem subtle to an inexperienced investor. But from a regulatory perspective, the difference is clear.
Dark green funds must meet even more stringent criteria. This makes them attractive to conscientious investors, but not to fund managers who are burdened with regulatory compliance.
advertisementEU regulation is entirely based on transparency. Managers can therefore choose to classify their funds as grey, light green or dark green.
Esma technical standardsAdopted on January 1, 2023, this law increases transparency burdens on “dark green” products to the point that it prompts a significant shift to “light green” classification instead.
According to one study, the value of these reclassified funds reached €175 billion in 2023. study By financial advisory and analysis firm Morningstar.
What are the criteria for dark green funds?
For all dark green sustainable investments, fund managers must provide metrics, data, methodologies and detailed information. 14 indicators It is regulated by EU regulation called “principal adverse effects” (PAI).
These metrics include greenhouse gas emissions (direct, indirect, and total) of portfolio companies and the presence of fossil fuel companies in investments.
advertisementNevertheless, sustainable fund managers still big polluter to their portfolio.
First, thanks to the flexibility provided by Article 8, fund managers can independently define criteria that they consider the fund to promote “environmental and/or social characteristics” (light green).
Secondly, Ambiguity in the meaning of words For unwary investors, many managers choose to market funds that do not meet Article 9 standards as “sustainable and responsible.”
Urizon classifies fossil fuel funds as ‘light green’
among them management reportEurizon defines its fund as “light green” even though it invests in fossil mining companies.
Sustainability disclosure section – If there is a need to describe the social and environmental characteristics of a product, that information is left blank, even though it is required by ESMA standards.
advertisementFor more than three years, Eurizon has labeled certain funds as dark green, or fully sustainable and responsible funds. before contract Documents disclosed to investors. The company revised the wording only after being contacted by Voxeurop for this investigation.
Not only does Eurizon admit that it takes into account only six of the 14 indicators provided by the EU for the assessment of sustainable investments; disclosure Regarding the promotion of environment, society, and corporate governance (ESG), we simply mentioned them without going into details of the information required by EU regulations.
Green funds lack compliance and enforcement
In fact, the EU regulations have detailed provisions. table In this documentation, management should include the metrics, the period for which they are calculated, a description of the methodology, and forecasts for subsequent periods.
These standards aim to transparently identify and quantify the negative environmental and social impacts of proposed investments.
Such information is essential for investors to assess whether a product is sufficiently sustainable before they start investing. money there.
advertisement“Managers can declare whatever they want, but then they have to document what negative effects there are based on metrics,” commented Franco Moliterni of Etica SGR.
However, Eurizon is limited to providing documents listed in the regulations and does not include data.
“This seems like a compliance and enforcement issue,” Messina said. “You cannot qualify.” investment If it is Article 8, it is sustainable. This can also be qualified as “attention to sustainability factors”. That’s the difference regulation makes.
“Obviously, there are people who are either too smart or don’t really know what they’re talking about.”
Asked about this discrepancy by Voxeurop in May 2023, Eurizon said that the sustainable investment qualification “will be removed at the first useful opportunity to update the offering document, which is already scheduled for next July.” Deaf,” he said.
advertisementAugust 4, 2023, Eurizon Has been updated As promised, the words “sustainable and responsible funds” have been removed from the key information document. This update comes 3 years and 6 months after the Green Finance Regulation came into force.
The research by Voxeurop was carried out with support from Journalismfund Europe.
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