06 Jul 2021
06 Jul 2021
S&P Global recently hosted their inaugural flagship Sustainable1 event, ‘Accelerating the Transition to Sustainability’, during which François Millet, Lyxor’s Head of ETF Strategy, ESG & Innovation shared his thoughts in a panel on ESG labels and how they can help avoid greenwashing. Read on for some edited highlights, or watch the full replay.
Victor: “I think in the last couple of years, the EU and the European Commission has definitely taken a leadership role in this place. (…) That all stems from the post Paris Agreement on climate where it was obvious that we needed to leverage private finance besides public finance if we ever wanted to reach the climate neutrality goals. (…) In Europe there’s really two pieces of legislation that emerged. One was the much talked about EU Taxonomy which tries to come up with a classification system of economic activities that are aligned with the climate goals of climate neutrality. So in a way it seeks to define ‘green’, seeks to establish a harmonised consensus view of what we consider as sustainable enough or ‘green’ enough. (…) That’s complemented by the whole Sustainable Financial Disclosure Regulation, or SFDR, which is fast on track to revolutionise the market. (…) On the one hand it asks fund products that make promises around ESG or sustainable investment to disclose much more on the risk side of the equation, which is “explain to us how your investment portfolio is hedged or able to withstand risks that may be resulting from material ESG factors”. That’s one side. But the novelty I guess here is that it starts to also address the other side of materiality, which is more the impact question, where I think there has been much talk about the so called Principal Adverse Impact Indicators.”
François: “The ETF industry in Europe totals €1.1trn, and out of this, 12% are ESG ETFs (€130bn). But for net new assets it’s a different story – ESG ETFs represent 50% of the new assets gathered in the market, so it’s really a big transformation of the ETF market. What I can say and report is that the Disclosure Regulation which has been highlighted by Victor has been essential. (…) The classification of our products between products which are just promoting ESG characteristics and products which are more actively proposing sustainable investment objectives has been absolutely key. In the ETF space in Europe, less than 5% of the products are so called ‘Article 9’, the most demanding level. (…) We needed it to comply with three different frameworks for our products. The first one is European regulation, including Taxonomy regulation and of course Benchmark regulation for index products and Disclosure regulation (SDFR). The second one is the doctrines of local and domestic regulators who are willing to go further in specifying the constraints. In some countries like France for example we need to demonstrate the materiality of the ESG screening of the products, so the European regulation is not enough to get there. And thirdly, the labels. The labels are initiatives coming from various countries. They are so far domestic, and not only are they country specific, but they are not harmonised around Europe. So we are trying of course to build products, and sometimes we are negotiating with index providers to make sure they are integrating in the methodology of the indexes the criteria so that we are eligible to as many local labels as possible, but also to the European regulation of course.”
Manjit: “I think with regulation coming in Europe on what companies should be disclosing, and frameworks like TCFD offering a bit more guidance on the environmental pieces, that helps frame it. But certainly, a lot of the level of depth, if you really dig into it, will be required to meet the regulators’ needs. On the investors’ side (…) they can be quite in depth, at a very granular level in such a way that companies themselves may not have thought about in the past. (…) I also think this is an opportunity to really connect investors with companies, and bring them together around information that is necessary, because regulators are asking for it, and because hopefully it will drive more consistency and hopefully move the needle forward. I think this has an opportunity to shape the way companies are disclosing certain pieces of information, compared to some of the disaggregation and misalignment we’ve had in the past with different reporting standards that existed for companies that were not necessarily focused on investors.”
Lyxor has been active on the labelling front, with many of our ETFs being either SFDR 8 or 9 compliant, or having received ESG labels. We know sustainability criteria matter to you, and we’re doing everything we can to help avoid ‘greenwashing’.
We’re happy to report that two more ETFs in our ESG range recently received the official SRI Label:
This adds to our growing list of ESG credentials, including the SRI Label for our MSCI Europe ESG Leaders (DR) UCITS ETF and our MSCI EMU ESG Leaders Extra (DR) UCITS ETF, and the Greenfin Label for our flagship Green Bond (DR) UCITS ETF.
Watch this space as we continue with our ESG fund labelling programme throughout 2021 and beyond!
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