Regulators’ ESG focus to hit money market funds

As regulators step up their scrutiny of suspected greenwashing and demand greater ESG disclosures, global money market funds face increasing risks too, says Fitch Ratings.

In a new report, the rating agency said that, with ESG assets growing rapidly, the money market fund sector is facing intensified regulatory attention.

In Europe, funds are likely to come under increased scrutiny, as the European Securities and Markets Authority has pledged to combat greenwashing, Fitch said.

And in the U.S., U.K. and elsewhere, regulators are also devoting more attention to the issue, with both policy and enforcement activity targeting ESG disclosures and the threat of greenwashing.

“To the extent regulation provides investors with consistent, comparable information about fund ESG strategies and investments, this could be supportive of longer-term growth in [assets under management],” the report said.

“However, increased investor and regulatory focus on ESG also presents outflow risks for ESG-related [money market funds] which fall short of standards or expectations,” it warned.

The report also noted that both regulators and investors are likely to face difficulties in evaluating ESG fund investments, due to both data limitations and cost constraints.

“These issues have been further challenged by increased geopolitical conflict, especially pertaining to governance, energy and fossil fuel investing,” it noted.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.