Very few funds are truly sustainable, according to definitions that regulators are looking to put into place. This was the conclusion of a new analysis released by sustainability tech platform Clarity AI. The firm looked at 18,000 funds across Europe and found that 80 percent of funds currently listed under Article 8 would fail to qualify for the category if new taxonomy requirements proposed by the European Securities and Markets Authority (ESMA) come into play.

Proposed amendments to the regulations are many, but one of them will require Article 8 funds with words including or related to “sustainable” in their names to have sustainable assets make up more than 50 percent of their investments. Currently, only 20 percent of funds in the category make the cut.

Widen the lens beyond the EU, and the picture looks even bleaker. Because regulations for sustainability disclosures differ widely between the US, UK, and EU, only four percent of funds would not have to be renamed or restructured in order to fully comply with all three regimes simultaneously.

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In its analysis, Clarity AI pointed out that the lack of regulatory alignment across borders will lead to increased compliance costs for funds. But more importantly, the confusion could result in greenwashing, which is “exactly what these regulations aim to fight”.

Changing taxonomy regulations and greenwashing in investments have been hot button issues lately. For more in-depth discussions, read our coverage here and watch the panel at our recent PostTrade 360° Stockholm conference.