Dividends and EU rules on sustainable funds muddy the waters on ESG

When you look to Europe, the countries make up an smaller geographic landmass than the US which means people do not see the wide open spaces. If many parts of the US it seems there are wide open spaces, trees as far as the eye can see and a land still need developing. In Europe there is less which means when something happens different in climate, people have fewer abilities to consider locating. We have seen hot weather in France, snow storms in England, floods in Germany and people know that weather is changing and not in a good way. One of the many solutions is to try to invest your money in companies that are providing solutions to the climate changes.

In an article by Tommy Wilkes of Reuters, one of the many responses is to identify which companies are green or along the way for Environmental, Social and Governance (ESG) models. Investment managers have read the tea leaves and many funds are offered and being sold which purport to be in the European Union’s Sustainable Finance Disclosure Regulation (SFDR) specifically Article 8. The article reads the fund promotes other characteristics, environmental or social characteristics or a combination of those characteristics.

Fund managers have examined SFDR and as long as the company adopts a policy or is seemingly taking action, then under their eyes the company fits into the the regulation. Given that just about every public company in Europe has adopted policies to mitigate climate change, fund managers have taken allowed the biggest companies in the natural resources to be in their funds.

Reuters asked 20 of the biggest fund houses for a list of products they market as Article 8 or 9. The result was companies ranged from climate-themed green to very, very light green. Hortense Bloy, director of sustainability research at Morningside said Investors should not expect anything from Article 8 regulations.

Two of Europe’s biggest firms, Alliance Bernstein and AXA Investment Management classify 90% of the funds they manage as Article 8 or 9 compliant. Blackrock, the world’s largest asset manager is expect to have 70% of its funds as compliant.

Linking to dividend paying stocks, companies examined government regulations to stay on the correct side of them, how much depends on the company. There are companies that are very good in their operations to whatever concern you have and others who just want to make money. When you invest you make choices, hopefully besides making profits and paying dividends you want your company to be what your consider to be a good corporate entity.

There are more questions than answers, till the next time – to raising questions.

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