(ETF Stream) EU's Ecolabel needs a rethink

In this column, published on January 24, 2023, Frédéric Ducoulombier, Director of the EDHEC-Risk Climate Impact Institute, analyses : "[...] This is consistent with recent empirical work showing that the simplistic energy exclusions rules built in the EU’s Paris-aligned benchmarks lead to structural underfunding of transitioning utilities and of the green activities undertaken by other energy companies. In this respect, ESMA hints that thresholds should be relaxed in combination with strict oversight and materialisation of transition promises. The regulator's study confirms the reasonable practitioner's concerns about the proposed calibration of the idea of extending the EU Ecolabel to retail investment funds. The pool of eligible investment opportunities is simply too narrow to support the proposal at this stage of the transition. The procurement of reliable and fit-for-purpose sustainability data is a challenge and will remain so in the medium term due to poor regulatory scheduling, indicator inflation, lack of definitional clarity and sometimes wilful ignorance of data limitations or downright design flaw metrics."

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