The latest developments in the ESG space.

MainStreet Partners
Nearly a quarter (23 per cent) of funds classified as Article 8 under the EU’s Sustainable Finance Disclosure Regulation (SFDR) remain at risk of greenwashing, according to a new report by MainStreet Partners, an ESG and sustainability data provider.

The 2025 ESG and Sustainable Barometer report, which analyses over 9,500 investment strategies managed by more than 460 asset managers, also revealed that the proportion of Article 9 funds under the SFDR that have a greenwashing risk has reduced over time – now sitting at 3 per cent.

MainStreet’s research also found that 13 per cent of funds have failed its regulatory adherence assessment. This assessment considers the relevant naming convention of the specific strategy together with the consistency of documentation to ensure that it is clear and not misleading, and uses fitting and targeted language.

The report, which evaluates key ESG and sustainability-related trends in the European and UK fund markets, also highlights a downward trend in asset manager ratings across each SFDR classification and non-EU ratings.

The findings come at a time when sustainability standards and expectations have increased, as well as a pullback of several asset managers from key initiatives such as the Net Zero Asset Managers initiative (NZAM) and Climate Action 100+ (CA100+). The findings also coincide with a general reluctance to discuss ESG and sustainability in the US.

“At the start of 2024, you may have been forgiven for thinking we would see less regulatory complexity than in the past three years. Unfortunately, that was far from the case, not least as fund-naming rules came into effect on both sides of the Atlantic,” Neill Blanks, managing director at MainStreet, said. “Regulatory scrutiny continues to intensify, with the threat of fines being imposed for those that do not adapt, on top of the associated reputational damage.” 

As markets continue to adapt to new frameworks, Blanks expects to see a broader range of ESG and sustainable investment products. “These products will have clear and specific key performance indicators linked to the fund's ESG and sustainable approach, allowing investors to better understand the intentions of the strategy and, most importantly, help reduce the risk of greenwashing. With clear regulatory expectations and evolving industry best practices, investors should have more confidence in the integrity of sustainable investment,” he said.

ESMA naming guidelines
The proportion of funds under the Paris Aligned Benchmark (PAB) regime which are in breach of their required exclusions has remained steady at 72 per cent, the firm continued. However, breaches of the Carbon Transitional Benchmark (CTB) exclusions have surged from 36 per cent to 49 per cent.

This rise is primarily due to the overall reduction in the number of funds in the scope of the regulation, in other words, funds have opted for a name change.

Among those that violate the exclusions set by the PAB regime, the most common reasons are exposure to activities in coal and to UNGC violators, the research shows. Of the funds breaching the CTB exclusions, and as per MainStreet’s methodology for assessing controversial activities, the breaching holdings are linked to controversial weapons and OECD violators.

Sustainability Disclosure Requirements (SDR)
Within the UK’s confirmed SDR labelled funds (either applied or applying), MainStreet currently covers 36 funds as part of their Level II methodology.

Of the funds that it covers, nine are impact funds with an average MainStreet ESG and sustainability rating of 4.6, while 25 of the SDR labelled funds covered are focus funds with an average MainStreet ESG and sustainability rating of 4.1. These average ratings are above the MainStreet Sustainability Assessed standard (4.0 and above).

This report has been released many months after MainStreet published its Fund Sustainability Due Diligence Report, which offers clients more insight into the ratings as well as providing a fully-evidenced research process.