Asset Managers May Be Facing Fresh Wave of ESG Fund Downgrades

Asset managers may need to downgrade hundreds of ESG funds in the coming months, as they struggle to land on the right side of European regulations.

Such a development would mark a significant escalation and cast serious doubts over ESG designations across the investment management industry. More than 40 funds were downgraded last quarter from Article 9 -- the top disclosure category within EU environmental, social and governance investing rules -- to a less stringent ESG category known as Article 8, according to Morningstar Inc. That follows 16 downgrades in the second quarter.

“It’s hard to predict how many Article ...