Assets in European sustainable funds have risen by 52% in the past year to €1.1trn in December 2020, driven by significant inflows, repurposed assets, and rising financial markets, according to Morningstar’s new European Sustainable Funds Landscape report
The report also notes that 2020 was a pivotal year for the regulation of environmental, social and governance (ESG) with the European Commission laying down the foundation for its Sustainable Finance Disclosure Regulations, or SFDR.
Taking effect on 10 March 2021, the new rules require firms to provide information about the ESG risks in their portfolios and classify their products into categories that will dictate additional disclosure requirements.
Hortense Bioy, global director of sustainability research at Morningstar comments, “2020 might have been the year of the COVID-19 pandemic, but it was also the year that ESG and sustainable investing reached a pivotal point. “
She says, “Record ESG fund flows, assets, and product development activity, combined with the most ambitious regulatory agenda to address climate change all herald a new era for sustainable investing in Europe.
Bioy adds, “ESG funds can no longer be seen as a niche area of the European funds landscape. From 11% today, we see ESG funds representing a much larger share of the overall fund market in the coming years.”
However, despite the progress there more work is needed on disclosure. A separate report from Scope Group shows investors still lack much of the data required for a comprehensive grasp of how sustainable the world’s biggest companies are judged by their greenhouse-gas (GHG) emissions, let alone by other less well defined social, governance and environmental factors.
Scope found that more than three quarters of the companies studied disclose no information at all. More than two thirds report no or incomplete information even for the less onerous scope-1 and scope-2 standards set by the GHG Protocol. They relate, respectively, to direct GHG emissions and emissions from purchased electricity.
Unsurprisingly, corporate disclosure on GHG emission varies hugely from sector to sector. Those which have long felt pressure to fully report sustainability-linked data because of the heavy ESG impact are the most transparent when it comes to climate-related disclosure.
“The gap between the reality of corporate disclosure and regulatory requirements regarding GHG data really complicates the life of investors who are being asked to disclose the main adverse impacts of their investments,” says Diane Menville, head of ESG at Scope.
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