Japan FSA To Review ESG Fund Labelling Rules

Discussions with asset managers and fund distributors may start by June to assess whether rules for mutual fund labels can guard against greenwashing.

Japan’s FSA (Financial Services Agency) is reportedly planning to review some ESG fund labels to protect investors from possible greenwashing.

Bloomberg reports that a popular ESG fund in Japan managed by Morgan Stanley and sold by Mizuho Financial has triggered an industry-wide review by regulators who are looking into new rules for mutual funds.

Japanese regulators may start discussions with asset management firms and fund distributors by June about whether there should be rules for mutual fund labels to prevent firms from exaggerating or misrepresenting the ESG benefits of their funds to attract investors.

The FSA’s move was partly triggered by the Global ESG High Quality Growth Equity Fund, a JPY 1 trillion (USD 9.4 billion) mutual fund owned by Asset Management One (a Mizuho Financial Group unit) and managed by New York-based Morgan Stanley, according to Bloomberg.

The fund is said to have initially offered investors insufficient information about its environmental and social impact, but after discussions with the FSA in January, Asset Management One began including more ESG details in a monthly update.

The update report now explains ESG-related efforts being made by the 10 biggest holdings in the fund, including Amazon, Uber and Mastercard.

Mizuho did not break any rules with its disclosure, according to FSA.

The mutual fund is one of the largest of its kind in Asia, and quickly caught on with Japanese investors after launching in July. Japan has latched on to the ESG fund craze more than any other country in Asia, accounting for 80 percent of ESG exchange traded fund assets in the region, according to Bloomberg Intelligence estimates.

Japanese ESG mutual funds also dominate the list of the largest funds in the region.

Still, a lack of clear fund descriptions has raised concerns that some companies might take advantage of the boom by labelling funds ESG even if they do not have a strong link to ESG.

Global regulators are introducing more rules to crack down on greenwashing as questions linger over self-labelled ‘ESG funds’, Bloomberg notes.

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