Cash Pours into Biodiversity Funds, EU Watchdog Warns
The surge in investment in biodiversity funds is a positive development, but it also warrants increased scrutiny to avoid greenwashing.
The European Securities and Markets Authority (ESMA) has cautioned that biodiversity investments exacerbate the data challenges of sustainable investing. This is because biodiversity covers multiple living organisms, making it difficult to develop standardised metrics.
Despite this, the market for biodiversity funds is growing rapidly. In the two years to June 2023, the cumulative flow of money into these funds reached €854 million. This is still a small niche, but it is expected to grow significantly in the coming years.
ESMA is concerned about the risk of greenwashing in the biodiversity investment market. Greenwashing is when a fund exaggerates its ESG credentials. To address this, ESMA has been stepping up its scrutiny of ESG funds. This has prompted some asset managers to downgrade their funds from Article 9, which has a clear sustainability objective, to Article 8, which partly focuses on ESG issues.
Despite these reclassifications, net flows into Article 9 funds have remained resilient. This suggests that investors are still willing to invest in funds with clear sustainability objectives.
ESMA is committed to maintaining an environment of trust in the sustainable investment market. To do this, it will continue to monitor the market closely and take action against greenwashing.
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Source: EURACTIV.com with Reuters