Sustainable funds and ETFs: Green mania for regulation: Make Brussels pay!
Sustainable investment has long been a niche for those who believe in it. Today everyone knows this investment approach. Unfortunately, one must say. Because there was too much ado about a project that was not thought through. According to the idea of the European Union, investors’ money should be channeled through regulation into the climate-friendly restructuring of the economy. However, a lot goes wrong with the implementation of this plan – to the detriment of consumers.
The EU financial regulator ESMA and the national supervisors want sustainable financial products and promise consumer protection. But they don’t get both. Instead, more and more new sustainability regulations cause high costs that are ultimately borne by the investors.
The rumor is currently circulating that an already existing, particularly sustainable fund category (“Article 9 fund”) is to be removed from the currently applicable list of EU laws. The problem: Each such change must be recorded in the fund prospectus. There have therefore been many changes in sustainable funds in recent years. Now, once again, an expensive overhaul could be in order. The fact that many funds can hardly meet the strict transparency and reporting requirements could have been taken into account as early as the legislative process.
Because every authority within the EU apparatus is apparently allowed to develop its own ideas of sustainability, the EU financial regulator ESMA now wants to devote itself to the names of sustainable funds. What sounds like green, environment, sustainable or climate could again have special obligations. New contracts and prospectuses again.
Lawyers make money, investors foot the bill
The hype about sustainability in investing is a gift for lawyers, auditors and rating agencies. And they don’t hold back just because it’s about a good cause. But when it comes to investing, the frenzy of regulation collides with expectations of returns. And that’s where it gets tricky.
Actually, fund managers should take care of high-yield investments. Instead, they are currently busy filling out online forms to meet EU transparency requirements. They look for data that later ends up in 100-page sales brochures or annual reports that hardly anyone will read.
Investors pay for it. Because costs incurred by a fund in order to meet the legal requirements may be taken from the fund assets. At least investors can control the costs. They are shown in the annual report – this is also provided for in the transparency rules. But what good is that as long as there is no polluter pays principle? Brussels should pay.
Also read: Why sustainability-oriented investors are better off not buying green funds
