New research from sustainability technology platform Clarity AI has highlighted the discrepancies in regulatory regimes for sustainability disclosures and labels across the US, UK, and EU, with only 4% of sustainable funds complying with fund labelling rules across all three markets. The report said these differences have led to confusion among issuers and investors. According to the analysis, over 95% of funds using the term ‘sustainable’ or a similar expression would require renaming or restructuring to comply with all three markets. Patricia Pina, Head of Product Research and Innovation at Clarity AI, emphasised the cost implications and highlighted the divergence in interpreting fundamental concepts like ESG and sustainability. Pina said that this “underscores how different actors – in this case regulators – are interpreting the meaning of core concepts like ESG and sustainability”. In November 2022, The European Securities and Markets Authority (ESMA) proposed minimum thresholds for Article 8 funds that use ESG or sustainability-related terms in their names. The ESMA proposals suggested that these funds should adhere to specific criteria, such as allocating 100% of assets to minimum safeguards and having at least 50% of assets classified as sustainable investments. Clarity AI conducted an examination of these proposals, analysing data from over 18,000 funds in Europe. The findings revealed that only 20% of Article 8 funds planning to make sustainable investments of over 50% currently comply with the proposed amendments.
