• Wed. May 25th, 2022

Clarity AI: only 7% of a sample of 31,000 equity funds have more than 10% “green income”, as defined in the EU taxonomy

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The EU taxonomy aims to align market participants with definitions of sustainability, but investors need to dig deeper to find out how “green” a fund really is.

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NEW YORK – The EU taxonomy aims to align all market participants on what is considered sustainable in the EU context, but investors need greater transparency on whether funds are truly green that they buy. Analysis by Clarity AI, the market-leading global sustainability technology platform, reveals significant differences in revenue from funds aligned with green goals – and linked to the EU taxonomy – between different types of sustainable investment products on the market today.

Under the Sustainable Finance Disclosure Regulation (or SFDR), investors must report EU taxonomy alignment as part of the sustainability profile of funds, which must be categorized into one of three categories following:

  • Article 6: non-permanent funds
  • Article 8: funds that promote sustainable characteristics but not as an overall objective
  • Article 9: Funds specially created to meet sustainability objectives

In a white paper entitled “EU Taxonomy: Using Tech to Analyze ‘Green’ Fund Performance”, Clarity AI analyzed an investable universe of 31,000 equity funds on the performance of these products against the new EU taxonomy requirements and assessed the common traits between the funds, which are often referred to as a certain way of “greens”. The analysis shows that:

  • Globally, 3.6% of income can be considered green (“green income”), i.e. it contributes to mitigating climate change.
  • Only 7% of the 31,000 equity funds analyzed have more than 10% green income, as defined in the EU taxonomy.1
  • Article 9 climate branded funds show four times higher alignment with the EU taxonomy than the overall sample average, with 15% of revenue classified as green. Section 8 funds, however, have a similar alignment to the average, with 3.9% green revenue.
  • Funds focused on sectors doing the heavy lifting in the green transition, such as utilities, show higher exposure and alignment, with 25% green revenue.
  • Funds with equity themes, such as alternative energy, are naturally more aligned with a green economy, with up to 27% green earnings.

Patricia Pina, Head of Product Research and Innovation at Clarity AI, said: “Given the disparate definitions and frameworks of sustainability around the world, we can consider the EU Taxonomy a pioneer in establishing a common standard to align a broad segment of global market players. At Clarity AI, we believe that regulation should be backed by detailed, data-driven insights, and that transparency cannot be an advantage.

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“The EU recognizes that a key requirement to foster the development of the sustainable investment market is ‘access to high quality sustainability-related data’. 2 This high-quality data also means moving away from subjectivity and using an objective, fact-based definition of what should be considered “green”, “social”, “environmental”, etc. The EU taxonomy gives us a common language that will enable stronger decision-making and acceleration towards a more sustainable economy.

“Reliable and transparent information is at the heart of evidence-based sustainable finance. They should become the standard for making informed “green” investment decisions. »

Notes to Editors

About Clarity AI

Clarity AI is a sustainability technology platform that uses machine learning and big data to deliver environmental and social insights to investors and organizations. As of December 2021, Clarity AI’s platform analyzes over 30,000 companies, 180,000 funds, 198 countries and 187 local governments, and provides data and analysis for investing, corporate research and reporting. Clarity AI has offices in the United States, Europe and the Middle East. Clarity AI’s network of clients manages trillions in assets under management. clarity.ai

Methodology

Clarity AI has developed a comprehensive assessment of how companies and funds align with the EU sustainability taxonomy classification using its proprietary sustainability analytics technology platform. Clarity AI leverages the widest possible range of tools and data sources available to increase the coverage, accuracy, and objectivity of sustainability analysis, while remaining transparent. The method described in this article is based on the three steps of the analysis of the European taxonomy of Clarity AI and displays two key indicators that investors will have to report:

  • % of eligible green revenues: as defined by revenues exposed to activities described in the EU taxonomy
  • % of green revenues aligned: which is based on eligible activities and incorporates an assessment of technical selection criteria, DNSH and SS requirements

Using its sustainability technology platform, Clarity AI can scalably assess >180,000 funds and >30,000 organizations. For this report, Clarity AI has selected a subset of its universe where it takes a deeper look at EU taxonomy alignment for over 31,000 funds globally. Clarity AI focused the analysis on parent funds (agnostic of asset classes) of equity-only funds for which it has sufficient fund characterization (e.g. assets under management, description, etc.). For comparison purposes, they cover a wide range of regions, sectors and strategies.

1 In line with the EU taxonomy alignment calculation methodology: use the weighted average percentage of green revenue per company, which is based on the weights within a portfolio

2According to a study by the European Commission published in June 2021

See the source version on businesswire.com: https://www.businesswire.com/news/home/20220317005718/en/

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Edelman
Julia Wright
clarityAI@edelmansmithfield.com

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