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greenwashing consultation noted that this is merely one of the many sustainable investment
strategies used by asset managers. Moreover, it is the least effective approach compared to
others such as the engagement, impact, thematic, and best in class strategies.
The SMSG understands that from a supervision point of view a quantitative threshold approach
might seem a more simple, white-and-black solution than more elaborated alternative
solutions. It would indeed be an easier to check solution. However, even if the proposal has
some merits, in practice, the need of clarification of the underlying rules is a major issue.
In addition, SMSG members think that, implicitly, the proposal seems to rely too much on a
static view of “green” or ESG funds. If the taxonomy alignment proportion is used to classify
funds for instance, there is a risk that a portfolio that invests in a sector that needs to transition
on a high impact scale (such as the energy sector) may not be compliant, whereas a portfolio
invested in more neutral sectors would be compliant while having possibly considerably less
impact on the green deal objectives. As the taxonomy has not been designed to be an
investment approach, it has not addressed the financing needs for the ecological transition,
which are huge and impactful. Transition probably needs to be considered in a forward-looking
way, in the sense that for transition it is important to look at the change (and the rate of change)
in a factor or a set of factors towards the objective/target and not only at the ‘greenness’ level
at one point in time, which is a snapshot of the current level of ‘greenness’ as opposed to the
change. The level of ‘greenness’ can be used to distinguish, with the appropriate definitions
and data, between e.g. – ‘green’ vs. ‘brown’ investments.
There is a need of clarification regarding ESG investment strategies and processes. Current
ESG strategies implemented by asset managers are much more diverse than “merely”
negative screening. ESMA could make a list of key ESG investment approaches/strategies
with their corresponding characteristics. Such clarifications are necessary as they can also
help advisors to avoid a mismatch of expectations between what funds promise, and what
investors expect them to do.
More generally, a quantitative threshold approach would seem to exclude most of the very
needed transition investments and increase further the weight of e.g., the Big Tech
companies
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: it is not because some listed companies may display highly taxonomy-compliance
that buying even more shares of those companies will contribute to the European green deal
aiming at channelling massive private investment towards the transition to a climate-neutral
economy. The SMSG is concerned that there could even be that investors are being misled if
this quantitative threshold approach would be pursued.
Lastly, greenwashing being in essence misleading information related to ESG/sustainability
matters, any quantified threshold approach applied to fund names would have to comply with
existing EU investor rules on clear, fair and not misleading information, in particular art 44 of
the delegated regulation (EU) 2017/565
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.