The European Commission published the results of a study on the testing draft EU ecolabel criterion on UCITS equity funds. The EU Ecolabel is a symbol of environmental excellence awarded to products and services that meet environmental standards throughout their life cycle and provides guidance to companies on environmental best practices.
Action 2.3 of the action plan on sustainable finance tasked the Commission with exploring the application of the EU Ecolabel framework to certain retail financial products including PRIIPs. The objective is to allow retail investors concerned with the environmental impact of their investment to rely upon a trusted and verified label to make informed investment decisions while incentivising financial markets to develop more products with reduced or positive environmental impacts.
Testing Draft EU Ecolabel Criteria
The objective of this study is to carry out a test run in relation to the draft EU Ecolabel criteria for financial products and in particular to test the application of draft criterion I for equity funds to a sample of 101 “green” UCITS equity funds domiciled in the EU27.
Focused on the EU environmental objective “climate change mitigation”, the commission analyses the share of EU Taxonomy aligned revenues of these funds’ constituents and hence provide insights into the potential qualification of the equity funds under draft criterion I.
The results show that from the sample, only three “green” UCITS equity funds qualify under draft Ecolabel criterion I. This finding is driven by two main factors.
- Lack of relevant data disclosed by the constituents of the “green” UCITS equity funds, and
- Limited scope of the EU Taxonomy, which has so far only been defined for a subset of economic sectors.
Disclosure obligations under the EU Taxonomy and the Non-Financial Reporting Directive (NFRD) will help address data gaps (at least for large and publicly listed EU companies), while the expansion of the EU Taxonomy to other environmental objectives will enlarge the universe of potentially EU Taxonomy eligible economic activities.