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Slowly, European regulators turn up the heat on greenwashing

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November 4, 2021

By Tommy Wilkes and Simon Jessop

LONDON (Reuters) – European financial regulators say they are uncovering more cases of greenwashing by asset managers cashing in on booming demand for sustainable finance, and some are starting to turn the screw on funds that cannot back up what they claim.

Trillions of dollars have poured into sustainable investment strategies in recent years and regulators have taken little action to ensure funds are marketed accurately, partly because of the lack of agreement on what ‘sustainable’, ‘green’ and ‘greenwashing’ mean.

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That makes it tough for watchdogs to prove deliberate exaggeration of environmental, social and governance (ESG) credentials, but this week IOSCO, which groups watchdogs, published recommendations to help members find firms who may be hoodwinking investors.

Regulatory risks have shot up the agenda since U.S. and German investigators said they were probing claims by the former head of sustainability at Deutsche Bank’s asset management arm, DWS, that it misled investors with its sustainable investing criteria. DWS rejects the allegations.

Lawyers in London said since those investigations were made public, asset managers were rushing to ensure they did not fall foul of regulators.

“We’ve definitely had more enquiries from our asset management client base, particularly around the marketing message – what is green? Are we getting this right?,” said Richard Small, partner at Addleshaw Goddard.

“It’s all too easy for this to turn into a mis-selling issue.”

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Regulators in France, Britain, Sweden, the Netherlands and Switzerland told Reuters they had found a number of instances where ESG claims were not backed up. The asset managers were asked to provide more information to support those claims, or forced to drop sustainability labels.

That shows how watchdogs are moving beyond the European Union’s landmark Sustainable Finance Disclosure Regulation (SFDR), which in March imposed mandatory ESG disclosure obligations on managers, to take more targeted action.

French watchdog AMF has forced managers to drop ESG labels after finding “completely unacceptable” cases of greenwashing, including funds that justified ESG names by excluding stocks already proscribed under French law, said Philippe Sourlas, head of AMF’s asset management directorate.

“We have a range of tools to tackle greenwashing. It can go from soft bilateral communication with the asset manager, to public guidance issuance, to a sanctions process,” he said.

Nick Miller, asset management department head at Britain’s Financial Conduct Authority, said weak fund disclosures were common.

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“Often the quality of the information is not sufficient for us to even begin considering the (fund) application,” he said, adding it also raised questions about whether managers met value for money regulations given ESG funds often charge higher fees.

Switzerland’s regulator FINMA said it is dedicating more resources to tackling the problem and has “immediately eliminated” cases of greenwashing it has found, by forcing managers to drop ESG claims, or amend relevant disclosures.

HOT TREND

ESG is one of the hottest investment trends, with assets in sustainable funds nearly doubling in six months to reach a record $3.9 trillion at end-September, according to Morningstar.

That explosive growth has left regulators playing catch up across the globe.

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In the U.S., the Securities and Exchange Commission has been asking managers to explain the standards they use for classifying funds as ESG-focused, sources said in September. Earlier this year the SEC said it had found “potentially misleading” claims related to ESG investing.

Reuters spoke with regulators in Britain, France, Switzerland, Sweden, Norway, the Netherlands, Germany and Luxembourg, five of which had identified funds marketed in their jurisdictions which make claims unsupported by the information they disclosed. The other three had not carried out detailed investigations or declined to comment.

Sweden’s Finansinspektionen found around 5% of 400 funds it examined made claims that did not stack up, head of sustainable finance, Johanna Fager Wettergren, said.

“It indicates a broader problem and we can intervene against funds that don’t conduct themselves properly,” she said.

The FCA’s Nick Miller said poor ESG disclosures were so widespread in the UK that it had written to fund manager boards in July setting out their need to disclose sustainability approaches in prospectuses and show how strategies can meet ESG objectives — like why they choose certain stocks over others.

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The United Nations-backed Principles for Responsible Investment (PRI), an investor network, said it welcomed regulatory efforts to tackle the problem of greenwashing.

But CEO Fiona Reynolds said supervision should be proportionate and “investors must not be discouraged from creating sustainability-focused products due to burdensome requirements.”

MIS-SELLING RISK

The approach of regulators to date has centred on publishing guidance and engaging in dialogue with managers.

Proving deliberate mis-selling is hard when definitions of ‘sustainable’ or ‘green’ are still being debated. Some doubt the success of prosecuting cases under the current regulatory framework.

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In the UK, the FCA’s Miller noted that poor fund disclosure doesn’t mean anyone had necessarily broken any rules.

The Dutch, Norwegian, Swedish and Swiss regulators said they hadn’t launched any greenwashing-related enforcement action yet.

Switzerland’s FINMA said statutory definitions of terms such as ‘sustainable’ and ‘environmentally friendly’ were needed first, while French regulator AMF is looking for improvements in ESG data and better definitions to help combat greenwashing.

The Dutch watchdog is waiting for the July 2022 introduction of SFDR’s second phase, a more detailed application of the new disclosure rules, before it takes any action against managers individually, said AFM’s senior supervisor Zoë du Chattel.

Tamara Cizeika, counsel at Allen & Overy, said that although regulators do understand new rules have a teething period, they are signalling that they are ready to take a tougher line.

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Britain’s guiding principles, for example, are about the application of existing laws to a slightly new context, making it harder “for asset managers to say ‘can I have time to get it right?’,” she said.

“This is all about investor protection and market integrity. We’d argue that boards should sit up and take notice because it is a significant and growing risk.”

(Editing by Rachel Armstrong & Elaine Hardcastle)

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Arnault-backed group launches second SPAC listing

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December 7, 2021

By Emma-Victoria Farr

LONDON (Reuters) – France’s richest man Bernard Arnault and former UniCredit head Jean Pierre Mustier will publicly list a second blank cheque vehicle in Amsterdam, raising 200 million euros ($226 million), the bookrunners on the deal said.

Earlier this year, the duo raised half a billion euros from their special purpose acquisition company (SPAC), Pegasus Acquisition Company Europe B.V., which is searching for takeover targets in the financial sector.

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On Tuesday, the same group of backers announced they would list a second vehicle with a similar focus, Pegasus Entrepreneurial Acquisition Company Europe, in Amsterdam.

SPACs are listed on a stock exchange by a group of entrepreneurs, who use the money raised to target a private company – allowing the target to get a stock market listing without the arduous process of launching a public listing.

Mustier is working with former Bank of America banker Diego De Giorgi and entrepreneur and investor Pierre Cuilleret in launching the 200 million euro listing.

Several SPACs have listed in Amsterdam, potentially boosting the Dutch financial capital’s credentials as a hub for fast-growing companies. London has only hosted one major SPAC in 2021, after updating its rules to make them easier.

Pegasus is backed by institutional sponsors Tikehau Capital and Financière Agache and by sponsors De Giorgi, Cuilleret and Mustier. Citi, Goldman Sachs and BNP Paribas are the bookrunners on the deal.

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($1 = 0.8860 euros)

(Reporting by Emma-Victoria Farr; editing by John O’Donnell and Louise Heavens)

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Bulls back in charge as Omicron worries wane

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December 7, 2021

By Marc Jones

LONDON (Reuters) – Waning Omicron COVID-19 variant worries and a timely booster shot of Chinese stimulus lifted world stock markets and oil on Tuesday and left traders offloading safe-haven currencies and bonds again.

The FTSEurofirst 300 index was on track for its first back-to-back run of plus 1% gains since February while Asia saw record bounces from some of China’s biggest firms such as Alibaba and Baidu. [.SS][.EU]

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The risk-on mood also helped the dollar climb against safe haven currencies such as the Japanese yen,, which had lost 0.6% overnight, as the confidence-sensitive Australian dollar also found buyers. [FRX/]

Safe-harbour government bonds went the other way with yields – which move inverse to bond prices – up 2.5% on Germany’s benchmark 10-year Bund after falling to a three-month low on Monday. [GVD/EUR]

Reports in South Africa said Omicron cases there had only shown mild symptoms and the top U.S. infectious disease official, Anthony Fauci, told CNN “it does not look like there’s a great degree of severity” so far.

“Good news relating to the severity of Omicron should be taken with a pinch of salt. Faster transmission could offset the benefits of milder symptoms,” researchers at ING said in a note. “More broadly, it is still early days, even if markets are starting to display Omicron fatigue.”

The gains also came after China’s central bank on Monday injected its second shot of stimulus since July by cutting the amount of cash that banks must hold in reserve.

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There was still uncertainty about its property sector as Evergrande teetered on the brink of default again but data showing much stronger import growth was “a positive sign on the strength of domestic demand”, RBC analyst Adam Cole said.

Elsewhere, Australia’s S&P/ASX200 rose 0.95%, while Japan’s Nikkei advanced 2.1% as risk-on sentiment pushed markets higher.

MSCI’s main Asia ex-Japan benchmark has lost about 5% so far this year, with Hong Kong markets figuring among the big losers, while Indian and Taiwan stocks outperformed.

Shares in embattled developer Evergrande edged up 1.7% after hitting a record low on Monday as markets waited to see if the real estate giant has paid $82.5 million with a 30-day grace period coming to an end.

Elsewhere, markets were supported by gains on Wall Street, where economically sensitive stocks outperformed.

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“While epidemiologists have rightly warned against premature conclusions on Omicron, markets arguably surmised that last week’s brutal sell-off ought to have been milder,” Vishnu Varathan, head of economics and strategy at Mizuho Bank, said in a note.

“After all, early assessments of Omicron cases have been declared mild, spurring half-full relief.”

Also supporting the dollar in FX markets was the expectation the Federal Reserve will accelerate the tapering of its bond-buying programme when it meets next week in response to a tightening labour market.

Oil prices jumped another 2% to $74.60 a barrel, adding to a near 5% rebound the day before as concerns about the impact of Omicron on global fuel demand eased. [O/R]

Copper prices also ticked higher while gold was steady at $1,778.5 per ounce on expectations U.S. consumer price data due later this week will show inflation quickening.

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(Additional reporting by Anshuman Daga in Singapore; Editing by Nick Macfie)

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Exclusive: EU antitrust regulator seeks input on Microsoft’s $16 billion Nuance deal

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December 7, 2021

By Paresh Dave

(Reuters) – EU’s antitrust regulator is taking a deeper look into Microsoft Corp’s $16 billion deal for transcription technology company Nuance Communications Inc, asking customers and competitors to draw up a list of concerns, according to a questionnaire from last month seen by Reuters.

The previously unreported outreach is the most extensive by an antitrust authority since the companies announced the acquisition in April, according to a person familiar with the matter.

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Microsoft declined to comment, and Nuance did not respond to a request for comment.

After minimal review, the U.S. Department of Justice in June and the Australian Competition Commission in October said they would not contest the deal. The companies filed for approval from the European Commission’s competition bureau last month, and the regulator has until Dec. 21 to clear the deal or open a bigger investigation.

The companies had expected to close the deal by the end of this year, but said last month the timeline could slip to early next year.

The questionnaire asks whether Microsoft and Nuance are competitors and whether a tie-up could affect clients and rivals, including whether Microsoft could favor Nuance over competing services.

Nuance primarily sells transcription technology that is popular among doctors and call centers that want to automate note-talking. Analysts view the deal as bolstering Microsoft’s presence in the healthcare market, and bringing it new voice and medical data to train artificial intelligence offerings in health, speech and biometric security.

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Like other big tech companies, Microsoft for years has grown its business through acquisitions, such as in advertising and video gaming. But in the last decade, Microsoft has avoided the target that recently has dogged its competitors Alphabet Inc’s Google, Facebook Inc, Apple Inc and Amazon.com Inc, all of which are facing antitrust lawsuits and investigations on numerous issues.

Steven Weber, a University of California Berkeley professor studying the intersection of technology and health care, said possible concerns about the pending deal could include Microsoft forcing its Office suite on Nuance customers by bundling them together.

Nuance has said it serves 77% of U.S. hospitals.

A key to its success has been has ensuring in deals with customers that it could use their data to advance its voice recognition systems, according to former chief executive Paul Ricci and another former employee.

For instance, a Nuance contract with Augusta University Medical Center, obtained by Reuters this year through a public records request, reads, “Customer shall provide Nuance access to voice and text data…and grants Nuance a perpetual, royalty-free license to copy, use and analyze such data for speech recognition research.”

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Big cloud vendors such as Amazon and Microsoft typically do not have unfettered access to customers’ data for research and development. But the opportunity to acquire those relationships and data explains Microsoft’s interest in Nuance, the former employees said.

Other providers of health transcription technologies include 3M Co and Philips.

(Reporting by Paresh Dave; Editing by Kenneth Li and David Gregorio)

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