To help investors identify which funds are actually aiding the transition, the EU may start requiring them to declare the extent to which they aim to reduce greenhouse gas emissions.
Some national regulators in the EU are adopting a much tougher stance. In France, the financial watchdog recently stipulated that asset managers will only be allowed to use its national ESG fund label if they exclude fossil fuel companies that are still expanding production. The plan has the potential to force about $7.6 billion worth of oil and gas divestments, Morningstar estimates.
Meanwhile, the EU’s toughest ESG fund designation has been reducing its exposure to fossil fuels over the past 2 1/2 years. Oil and gas assets in Article 9 funds fell to 0.1% of the total last quarter from 0.6% in early 2021, the Morningstar data show. Investments in renewables rose slightly to 1.8% from 1.7%.
From a returns perspective, however, sticking with renewables has been difficult in 2023. The S&P Global Clean Energy Index is down roughly 30%, while the S&P 500 is up 20%. The S&P Global Oil Index has slipped about 3% in the same period.
Capital-intensive renewables companies have had to contend with “rising financing costs, materials inflation and supply chain disruption,” Bioy said.
Those headwinds may soon recede, though, according to analysts at JPMorgan Chase & Co. They suggest that 2024 may present a “highly favorable” backdrop for traditional ESG assets that struggled in a high interest-rate environment.
Next year also will be “pivotal” for ESG regulations, the JPMorgan analysts said in a note published this month.
This article was provided by Bloomberg News.