Schroders Renames Energy Transition Fund to Comply with ESMA Stipulation Deadline
Schroders Rebrands Global Energy Transition Fund in Compliance with EU Sustainable Fund Labelling Guidelines
The European Securities and Markets Authority (ESMA) has introduced new guidelines on the labelling of sustainable and ESG funds, with fund houses like Schroders required to comply by May 2023. In response, Schroders has rebranded its Global Energy Transition Fund to Schroder Global Alternative Energy Fund, effective from February 26.
The Schroder Global Alternative Energy Fund, managed by Alex Monk, Felix Odey, and Mark Lacey, focuses on investments in industrials, utilities, and information technology. The fund is available to retail and institutional investors in GBP, USD, EUR, CHF, and SGD share classes.
The rebranding is a necessary step to comply with the EU's new regulations aimed at improving transparency and credibility in sustainable investment products. The new guidelines define transition strategies as assets that will become sustainable over time. Funds must dedicate at least 80% of their portfolio to assets that meet the criteria for transition assets under the new guidelines.
Schroders is not the only fund house facing a rebranding challenge due to the new guidelines. Many clean energy funds in listed markets have been affected by investor scepticism, with the MSCI Global Alternative Energy Index down 53.2% since 2022. Clarity AI research shows that over half of ESG or sustainable funds in Europe contain breaches of the new guidelines and may need to divest from assets or consider rebranding.
The new guidelines involve a significant overhaul of the current Sustainable Finance Disclosure Regulation (SFDR) framework. They introduce standardized emissions targets, enhanced Principal Adverse Impact (PAI) disclosures, and machine-readable templates for transparency and comparability. The EU aims to shift from merely transparency-based rules to a framework that ensures clearer, more reliable classification and disclosure of sustainability in investment funds.
To comply with the new guidelines, fund houses like Schroders must adapt to several key changes. They will have to align with enhanced and standardized climate-related metrics, including precise emissions targets tied to funds and portfolios to meet the new reporting standards. Fund managers are required to enhance disclosures on negative sustainability impacts of their investments, using the new templates and standards for consistent reporting.
Schroders is emphasizing investments in solution assets rather than transition stocks within the Schroder Global Alternative Energy Fund. The fund has been particularly popular among European investors, outperforming its benchmark despite a drop of more than 36% since 2022. However, the new guidelines carry the risk of fines and reputational damage for funds that do not meet the new standards.
Fund houses must stay agile in integrating the evolving sustainability reporting and disclosure criteria into their product and compliance frameworks, as the EU may finalize these changes by early 2026 following consultations. The new ESMA guidelines will come into force in May 2025.
The Schroder Global Alternative Energy Fund, now focusing on investments in industrials, utilities, and the technology sector, will need to dedicate at least 80% of its portfolio to assets considered transition assets under the EU's new guidelines. To ensure compliance, fund houses like Schroders must adapt to changes such as aligning with enhanced climate-related metrics and using standardized templates for transparency and comparability in their sustainable investment products.
