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The ESG Phenomenon: MainStreet Partners Report

Editorial Staff

7 February 2023

MainStreet Partners 
, a London-based independent ESG advisory and portfolio analytics firm, has launched its 2023 ESG Barometer report this week. The report provides insights on the status of ESG integration in the European funds market.

The barometer, which looks at the EU’s Sustainable Financial Disclosure Regulation classification and recent European ESG Template data points, is the standardised way of exchanging ESG data. It also explores ESG and sustainable strategies by asset class, sub-asset class, and by size of asset managers.

The findings show that many funds with Article 9 status under the SFDR don't meet the expected highest focus on sustainability. Around one-third of Article 9 funds require a sustainable investment of at least 30 per cent or less.There has also been a shift in funds moving from Article 6 to Article 8 status because of asset managers changing their ESG approach to process, disclosure and regulatory classification. Overall, the number and percentage of Article 9 funds in MainStreet Partners’ universe has remained steady, whereas there has been a clear shift from Article 6 to Article 8, the firm said. (Under Article 6, this refers to products that don't integrate ESG considerations into the investment decision-making process or explain where the integration is not relevant and where products don't meet the criteria of Article 8 or 9. Under Article 9, these are products that have sustainable investment as their core objective.)

After analysing the EET data, the firm also found that over 90 per cent did not have or did not disclose environmental targets. This analysis demonstrates that EET data is still unreliable. The firm expects a significant improvement in quantity and quality of EET data in the coming months.

Meanwhile, medium-to-large asset managers continue to score slightly higher in ESG ratings than smaller/boutique asset managers.

Emerging markets funds, which are also at a disadvantage compared with their developed market peers, consistently scored lower in ESG ratings, the report finds. This is partly due to investee companies receiving lower ESG ratings. However, the lack of data and disclosure from emerging market regions makes ESG analysis generally more difficult.

Simone Gallo, managing director at MainStreet Partners, said: “The new European regulation on sustainable investments has created a revolution in the wealth and asset management industry and ESG conversations are now on the top of the agenda across boards and executive committees.”

“But there is also significant confusion in the market about what constitutes a sustainable fund as well as how to avoid the risk of ‘greenwashing’ across a huge offering of new products marketed as ESG, impact or sustainable,” he continued.

“For these reasons, we continue to see an increasing number of investors across Europe and Asia that either require, or desire, easy-to-understand and consistent ESG ratings that go beyond the simple bottom-up aggregation of ESG ratings of holdings to provide an independent holistic ESG due diligence,” he said.