ESG fund manager uses carbon-heavy bets to beat the pack

ESG fund manager uses carbon-heavy bets to beat the pack

fund management

2 min.

today at 07:01

Luxembourg fund Eurizon beats peers with portfolio of fossil fuels and other commodities

Luxembourg fund Eurizon beats peers with portfolio of fossil fuels and other commodities

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This year’s top performing ESG fund managers have relied heavily on some of the most carbon-intensive assets, seemingly in line with regulations meant to steer capital towards a greener future.

The top-ranked ESG equity fund of the year through mid-June, which is managed by Eurizon Asset Management, gained nearly 16%, compared to an average decline of 20% for its European peers.

The fund manager behind this outstanding performance, Francesco Sedati, readily admits that the content of his portfolio – fossil fuels and other commodities – “is a bit controversial from an ESG point of view”. But he also points out that his fund fully complies with the so-called Article 8 classification of the EU Sustainable Financial Disclosure Regulation, which is reserved for investments that “promote” sustainability.

It’s a good illustration of how Europe’s anti-greenwashing rulebook is opening itself up to a wave of criticism from investors, activists, lawyers and even regulators for being too vague and potentially even toothless. The Eurizon fund in question is supervised by the Luxembourg regulator. But across the border in France, the financial watchdog has questioned the inclusion of fossil fuels in ESG funds.

Managers of Article 8 funds must find “serious” justifications for choosing fossil fuels, according to Robert Ophele, the head of the French supervisory authority. But when it comes to SFDR’s stricter ESG category, known as Article 9, “it’s out of the question” to hold such assets, he said.

The European Sustainable Investment Forum recently warned that if the SFDR’s weaknesses are not addressed, the ESG fund management industry it is supposed to guide will face “significant reputational risk”. It estimates that by the end of 2021, 39% of Article 8 products and 33% of Article 9 products had more than 5% exposure to fossil fuel companies. Additionally, 22% of Section 9 funds were exposed to companies that derive more than 5% of their revenue from thermal coal. For Section 8 products, the figure is 36%. Eurosif describes the results as “surprising”.

Sonali Siriwardena, partner and head of ESG at law firm Simmons & Simmons, warns clients that the coming year will bring significant upheaval to the wider regulatory environment.

“It will be a roller coaster ride over the next 12 months,” she said.

The bottom line is that time is running out to ensure that the world’s most ambitious ESG investment regulations are fit for purpose.

In April, the United Nations Intergovernmental Panel on Climate Change estimated that the planet could be on track for temperature increases that could be twice the limit set in the Paris agreement. on the climate. The question is whether the world can rely on the fund management industry, and those who regulate it, to ensure that capital moves to projects that prevent this from happening.