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MainStreet Partners Frowns On Proposed New EU Sustainability Grades

Tom Burroughes

28 June 2024

A specialist firm in the sustainable finance space has criticised European Union regulators’ proposed changes to the way in which investment and other products are graded, saying this will cause confusion.

European Supervisory Authorities, which want to change the way sustainable finance disclosures are regulated, recommend that the European Commission considers bringing in a “sustainability indicator” to grade products such as investment funds, life insurance and pensions.

Regulators are trying to stamp out “greenwashing” – making investments appear “greener” than they really are – by tying together rules to give customers clear, comparable information. Without agreed standards, funds being touted as “sustainable” suffer a credibility problem. Policymakers are trying to counter investor cynicism about sustainable finance and ESG investing after recent years of mixed performance. However,  the issue is fraught with political, economic and scientific debates. For example, the European Commission has changed its taxonomy of what counts as "green" to include natural gas and nuclear power.

“The introduction of categories and/or with an indicator is a very different approach from the Article 6, 8 or 9 system we currently use in Europe,”  Bhavik Parekh, CFA, research associate at  launched the Sustainability Navigator, a tool designed to streamline the construction of sustainable investment portfolios and deliver data insights for asset managers and wealth managers, in line with the the EU’s Sustainable Finance Disclosure Regulation (SFDR) regulation. Here is another article about the firm's reporting on sustainable finance.

ESG investment ideas are being increasingly embedded into the financial rules governing financial markets, even though ESG remains controversial in countries such as the US, heightened by the 2022 surge in energy prices, aggravated by the Russian invasion of Ukraine in February 2022, and other forces. (See an article here on views about ESG pushback.)