Sustainable Development Criteria: The US Securities and Exchange Commission wants to tighter control of ESG funds | News

• There are no clearer definitions in the so far poorly regulated market
• The ESG criteria are misused for fake labels and greenwashing
• Investment firm BNY Mellon has warned

As reported by the Financial Times, the SEC intends to determine when and how mutual funds may use different terms such as “ESG”, “sustainable” or “low carbon” in their names, and what criteria they must meet.
Criticism of the earlier handling of ESG criteria has been around for a long time. Recently, after Tesla was removed from the S&P 500 Sustainability Index, there was a lot of debate about the basic criteria. Experts complain that the market is too poorly regulated and that clear definitions have so far been lacking.

Balanced funds

Balanced funds have more than doubled in size in the past three years: compared to $ 1 billion in 2019, global assets of balanced funds at the end of March 2022 totaled $ 2.77 billion, according to Morningstar. The ESG investment category includes environmental and climate funds as well as investments with public impact. Funds that exclude investment in the tobacco industry or firearms are also included.

Regulation of ESG criteria by the SEC

In accordance with applicable regulations, funds may use the abbreviation ESG in the title only if they adequately invest at least 80 percent of the assets under management. In the future, the SEC also wants to ask for information on how ESG funds are marketed, how investment criteria are taken into account, and how funds vote at annual company meetings, the Financial Times reports, citing expert circles. A panel led by SEC chairman Gary Gensler is expected to vote to release the draft rule for public comment. The draft rule is based on an analysis of the ESG market in April 2021.

“There is now a wide range of terms and criteria that money managers can use,” Gary Gensler quoted in March from the Financial Times. The time has come to clarify whether the fund is really what it claims to be.

Investigations against BNY Mellon and DWS

The last two studies show that the SEC and the German stock market regulator are taking a stricter approach: first, comparing $ 1.5 million to investment firm BNY Mellon. This is the first time that a US fund ESG investigation has been investigated. BNY Mellon has been accused of giving false and insufficient information about the ESG criteria of its mutual funds. The investment firm then stated that it had updated its fund documents and that none of its equilibrated funds had been detected by the regulator.

On the other hand, during searches in connection with allegations of greenwashing at a subsidiary of Deutsche Bank DWS in Frankfurt. DWS chief Asoka Wortmann then had to vacate his post.

The Swiss fund industry wants to cut itself off from greenwashing

Also in Switzerland there are known cases of allegations of greenwashing and fraudulent labels. The Swiss Asset Management Association recently distanced itself from this in its position: “AMAS recognizes that the practice of greenwashing is practiced by Swiss financial institutions and expresses that it considers this isolated practice to be a legal risk and a risk to the reputation of the Swiss financial center and generally Rejected.” It calls for a policy of zero tolerance against infringements, but also points out that detecting and combating such greenwashing practices along the entire value chain can be difficult.

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