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ESG Focus: analysis of submissions of European ESG Template

Date: 17 Jan 2023

Silvia Ricciardi

Analysis of submissions of European ESG Template (EET) as compared to Clarity AI data shows room for improvement.

Clarity AI announced the results of a follow-up analysis to its November 2022 analysis on Article 9 funds that are investing in companies with undeniable evidence of having violated the UNGC principles, as well as in companies deriving the majority of their revenues from fossil fuels. This analysis wants to unpack why “green” funds would be investing in this way.

The European ESG Template (EET) is an industry tool which helps financial market participants make disclosures in an easier way and it contains much of the same information as the SFDR Level 2 templates that have entered into force this month. It is and will remain voluntary for asset managers to decide to fill in. Despite this, many fund managers are already submitting EETs.

Clarity AI’s follow-up analysis shed light on three distinct areas:

The level of disclosure in the EETs is still very low

Out of a sample of 830 Article 9 funds, only 5% included a value for the data field “share of investments in companies that have been involved in violations of the UNGC principles of OECD Guidelines for Multinational Enterprises” and only 10% of funds disclosed the share of their investments that were exposed to fossil fuels.

There is a challenge with data comprehensiveness and completeness for UNGC and OECD guidelines-related violations

Only 43 Article 9 fund managers reported granular information in their EET that included fund exposure to companies with UNGC principles or OECD guidelines violations. Of them, 42 reported zero exposure; however, Clarity AI’s data suggests that close to 60% (25 funds) are investing in at least one company involved in such violations.

One out of five Article 9 funds underreport their exposure to fossil fuels

When comparing Clarity AI’s data with the EETs from the 83 Article 9 funds that disclose this information, Clarity AI’s research team finds that 21% of these funds underreport their exposure to fossil fuels. On average their exposure is 4 percentage points (pp) lower than what Clarity AI data shows, but the difference can go up to 13pp.

Source: clarity.ai

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