The name of a fund is often the first and sometimes the only point of contact before investing. Individual investors frequently lack the patience to read through the extensive legal documents that fund managers must produce to ensure transparency. However, fund naming has so far been minimally regulated.

The urgency of climate issues and the growing interest in sustainable and responsible investment have increased the supply of ESG investment funds. Many funds now use terms such as "ESG," "Sustainable," "Transition," and "Net Zero" in their names. Yet, not all of these funds have adopted a sustainable finance label (e.g., French SRI Label, Towards Sustainability, FNG Siegel), which somewhat guarantees alignment with their marketed features. A common and ambitious label is still missing from the sustainable finance directives adopted in the “Green Deal” package.

How can we ensure the integrity of fund names for investors? A recent example is the German manager DWS, fined $19 million for exaggerating the ESG characteristics of its investment funds. To prevent such issues, the European Securities and Markets Authority (ESMA) published its final report on the names of ESG funds in May 2024, incorporating feedback from stakeholders. Key points include:

Fund Naming Categories

1. Transition Funds: "Transition," "Improve," "Progress," "Evolution," "Net Zero"
   
2. Environmental Funds: "Green," "Environmental," "Climate," "ESG," "SRI"
3. Social Funds: "Social," "Equality"
4. Governance Funds: "Governance," "Controversies"
5. Impact Funds: "Impact Investing," "Impactful," "Impacting"
6. Broad ESG Funds: "Sustainability," "Sustainable"

Each category must comply with minimum standards to use these keywords based on European legislative guidelines. The main criteria are:

• 80% of investments must meet social or environmental characteristics (based on the European taxonomy and indicators in Annex II and III of the SFDR directive).
• Exclusions from the Paris Aligned Benchmark (PAB) directive:
  • Controversial weapons
  • Tobacco production
  • Violation of UNCG or OECD guidelines
  • Coal extraction (1%)
  • Oil extraction (10%)
  • Gas extraction (50%)
  • Carbon-intensive electricity production (+100gCO2/kWh)
• Exclusions from the Climate Transition Benchmark (CTB), equivalent to points a, b, and c above, also known as "minimum safeguards."

Generalist funds, “S” funds, and “G” funds must apply only the minimum safeguards. "Transition" and "Impact" funds, in addition to the minimum safeguards, must meet the 80% investment threshold with social or environmental characteristics. "Transition" funds must demonstrate a clear and measurable social/environmental trajectory, while "Impact" funds must show that their investments generate a measurable positive impact alongside financial returns.

Funds with an environmental emphasis, including terms like ESG and SRI, must meet all these criteria simultaneously and exclude fossil fuels.

In conclusion, these guidelines will provide investors, especially individual ones, with certain guarantees to select more sustainable investments. Managing controversies will be a crucial challenge for any fund manager offering a range of ESG funds.

Reach out to SESAMm

TextReveal’s web data analysis of over five million public and private companies is essential for keeping tabs on ESG investment risks. To learn more about how you can analyze web data or to request a demo, reach out to one of our representatives.

Controversial business involvement is no longer a niche ESG issue. From fossil fuels and weapons to gambling, sanctions, and human rights abuses, exclusion policies are expanding and scrutiny is intensifying, especially across private markets.

As SFDR and the EU Taxonomy raise the bar, investors must prove that controversial exposures are identified, documented, and consistently screened, even when disclosures are limited.

In this ebook, SESAMm explores:

• How exclusion rules are evolving under SFDR, the EU Taxonomy, and investor mandates
• Why controversial involvement is harder to detect in private markets and secondaries
• Real-world case studies revealing hidden exposure and compliance risk
• How AI enables faster, auditable screening across public and private assets

Download the ebook to learn how investors can apply consistent, defensible exclusion screening at scale.

Environmental, social, and corporate governance practices have been under scrutiny for the past year. In this article, we focus on the most significant ESG controversies related to the environment. Our research provides a detailed overview of the top environmental issues that surfaced during the year, highlighting the most talked-about controversies and the companies involved. We dive into each of these issues, analyzing their impact on the environment.

Environmental Risks: Focus 2023

We outlined the prominent risks in 2023: social risks, with layoffs and strikes gaining attention; environmental risks, marked by wildfires and oil spills; and governance risks, where tax evasion and ethical violations like bribery were in focus. Each risk category underscores the urgent issues facing society and the need for accountability and action.

Environmental Controversies of 2023

Environmental risks may not match the sheer number of mentions that social risks receive, but their presence in discussions has steadily grown over the year, particularly in the third quarter. Let's explore the most common controversies that have emerged.

Climate Change and Policy

Climate change dominated environmental discussions in 2023. A noticeable peak in mentions arose in the latter half of the year, particularly around heatwaves and debates surrounding climate policies.

Atmospheric Emissions

September saw increased discussions about atmospheric emissions, notably due to the emissions from volcanic eruptions,  hybrid cars, and the discovery of toxic metals in food products.

Impact on Biodiversity

The wildfires that spread in June sparked significant debates around their impact on biodiversity, leading to increased mentions and concerns related to environmental preservation.

Top 5 Environmental Controversies

These controversies are ranked by relative volume*.

• Marathon Petroleum
  

Volume of mentions: 62

Relative volume: 69%

A significant portion of environmental risk discussions surrounding Marathon Petroleum was due to its chemical leak in Garyville. This incident led to massive fires, so large they could be observed from space. (source)

• Nestlé
  

Volume of mentions: 30

Relative volume: 54%

Nestlé faced scrutiny in 2023, with over half of its environmental risk mentions associated with drought controversies. The company was urged to cease its water mining activities following severe droughts in France. (source)

• Coca-Cola
  

Volume of mentions: 178

Relative volume: 53%

Coca-Cola garnered attention due to a hydrochloric acid leak in January 2023, leading to significant environmental concerns. (source)

• ExxonMobil
  

Volume of mentions: 571

Relative volume: 31%

Exxon, along with Guyana’s environmental agency, was implicated in breaches of oil spill insurance policies. (source)

• Shell
  

Volume of mentions: 872

Relative volume: 23%

An oil spill from a Shell pipeline adversely affected farms and a river in a region of Nigeria already grappling with pollution. (source)

Conclusion

Environmental risks remain a significant concern for companies in various industries. The top 5 environmental controversies in 2023 were not only related to oil and gas companies but also included companies in other industries, such as Nestlé and Coca-Cola. These incidents underscore the importance for businesses to prioritize sustainability and take responsibility for their impact on the environment. By adopting sustainable practices and reducing their environmental footprint, companies can mitigate future risks and ensure long-term success.
Make sure to read the full article, which includes top controversies for social and governance topics here.

Relative volume*: Relative to the total volume of E, S, or G risks for the company during the same period.

SESAMm’s AI Technology Reveals ESG Insights

Discover unparalleled insights into ESG controversies, risks, and opportunities across industries. Learn more about how SESAMm can help you analyze millions of private and public companies using AI-powered text analysis tools.