«Greenwashing» efforts in Asia could take a hit as Japanese regulators consider rules for labels after related concerns were triggered by a fund sold by Mizuho Financial and managed by Morgan Stanley.
Japan’s Financial Services Agency (FSA) is exploring discussions with fund firms and distributors by June this year on potential rules for labels, according to a «Bloomberg» report citing unnamed FSA officials.
One of the intended goals is to prevent exaggeration or misrepresentation of the environmental, social or governance (ESG) benefits of funds to attract investors.
Asset Management One
The newly intensified scrutiny on fund labels was triggered by concerns related to Mizuho’s Asset Management One, which owned a product managed by Morgan Stanley called «Global ESG High Quality Growth Equity Fund», according to the FSA officials which noted that no disclosure rules were broken.
While the fund gained popularity amongst investors after its July launch last year with assets under management rising to 1 trillion yen ($9.4 billion), it lacked sufficient information related to environmental and social impact.
In January, it began adding more ESG-related details, such as the efforts conducted by the fund's top 10 largest holdings, after discussions with the FSA.
Studying U.S. Rules
According to the FSA officials, they have been studying a U.S. investor protection regulation adopted in 2001 called the «names rule» which requires that funds invest at least 80 percent of their holdings in the asset class signaled by its label.
Despite growing focus by the financial sector in sustainable finance, «greenwashing» continues to pose a risk, especially for the region which is home to both opportunities from emerging markets but also challenges such as lacking transparency.
Japan is a major player in this field, accounting for 80 percent of ESG exchange-traded fund assets in the region, according to Bloomberg Intelligence estimates.
