Regulators Warned Against Greenwashing. Allocators Listened.

ESG fund managers in Europe might raise less capital and could even be fined by regulators if they can’t back up their sustainability claims.

Illustration by II

Illustration by II

European regulators have spent the past few years cracking down on environmental, social, and governance funds — and it appears that allocators were paying attention.

Fifty-six percent of European allocators said they were either extremely or moderately concerned about greenwashing in the asset management space, according to the latest ESG report from Cerulli. The issue is especially pronounced in places like the Netherlands, France, Switzerland, and the Nordic countries, where over one-third of allocators said they were extremely concerned about unsubstantiated ESG claims.

Cerulli based the result on a survey of 210 European allocators, including pension funds, endowments, foundations, and insurers. The survey was conducted throughout 2022.

According to Cerulli, enthusiasm toward ESG funds in Europe has been trending downward over the last year. European investment funds that were marketed as ESG integration and engagement products saw a net outflow of €181 billion ($195 billion) in the first three quarters of 2022 — a complete reversal from the €150 billion net inflow recorded in the year before.

This cooling sentiment toward ESG funds has come as regulatory scrutiny of greenwashing increased across Europe. In the U.K., the Financial Conduct Authority has proposed a set of measures to clamp down on marketing efforts or public relations campaigns that make funds look more environmentally friendly than they actually are. In France, Sweden, and Switzerland, local authorities have found inconsistency between some asset managers’ ESG claims and the underlying investment strategies.

As the legal framework around the ESG industry becomes more explicit, managers in Europe may have to pay higher prices for engaging in greenwashing activities


“Despite the prevalence of greenwashing allegations in the asset management industry, few managers have been fined,” Justina Deveikyte, director of European institutional research at Cerulli, said in a statement. “However, this may change as the regulation around sustainability claims becomes clearer.” She noted that 85 percent of allocators in Europe support fining managers for greenwashing activities.

Facing pressures from regulators and allocators, fund managers themselves are also reflecting on how to better substantiate their ESG claims. According to Colin Graham, head of multi-asset strategies and co-head of sustainable multi-asset solutions at Robeco, a main challenge for managers is that companies may “end up selling or divesting businesses that don’t meet ESG criteria” instead of improving their ESG practices. In his most recent outlook, greenwashing was listed as one of the ten possible “black swans” in 2023.

“We see the potential for sustainability claims to be more strongly scrutinized by regulators, media and investors, and as a result, large financial institutions will struggle to evidence their sustainability credentials across facets of their businesses,” Graham said.