Billions Chasing Contested ESG Funds Leave Insiders ‘Mystified’ (2)

As an ESG fund class facing mass downgrades attracts vast client flows, industry insiders confess they don’t understand why investors aren’t being more cautious.

The fund class in question is called Article 9—Europe’s top environmental, social and governance disclosure designation. The problem is that analysts, industry associations and lawyers advising fund managers acknowledge that a significant number of Article 9 funds don’t currently meet the EU’s strict sustainability requirements.

Dozens of funds have already lost their Article 9 tag, including offerings from Pacific Investment Management Co. and Goldman Sachs Group Inc.’s NN Investment Partners. Yet despite the cloud ...