Sustainability technology company Clarity AI announced the launch of a new tool aimed at helping fund managers to market products aligned with new sustainable investment naming rules, labels and standards across Europe.

The new solution comes as regulators and lawmakers across Europe launch a series of new labelling rules for sustainability-focused funds, aimed at addressing the proliferation of ESG-related financial products over the past few years, with a lack of standards setting out clear criteria for these funds leading to a risk of greenwashing for investors.

New naming and labelling regimes include the UK FCA’s Sustainability Disclosure Requirements (SDR), France’s SRI label and Germany’s FNG. Additionally, EU markets regulator the European Securities and Markets Authority (ESMA) recently released guidelines requiring funds using ESG, sustainability, or impact terms, or environmental terms such as “green,” “environmental,” or “climate,” to meet investment thresholds including having at least 80% of assets in investments used to meet the sustainability characteristics of the fund, and to follow the exclusion criteria for Paris Aligned Benchmarks (PABs). A recent analysis by Clarity AI found that more than 40% of ESG or sustainability-labelled funds could be required to change names due to the new ESMA guidelines.

Tom Willman, Regulatory Lead at Clarity AI, said:

“Sustainability regulations and labels are proliferating, making it increasingly challenging for fund managers to keep up. A significant amount of resources is tied up in regulatory obligations. These could be better used to develop sustainable solutions that support end-investors’ sustainability goals, and technology is key to making this process more efficient.”

According to Clarity AI, the new tool, aimed at fund managers, portfolio managers, and ESG analysts, will help monitoring funds across the new regulations’ complex metrics and frameworks, with a user-friendly platform that brings all the information into one single screen. At launch, the solution will support fund managers with the German FNG and UK SDR Labels, help screen for the Paris-Aligned Benchmark (PAB) and Climate Transition Benchmark (CTB) exclusions for ESMA Naming Rules, with additional labels to be launched soon, including French SRI label and the Belgian Towards Sustainability label.

Henry Waind, Product Lead at Clarity AI, said:

“The goal is to reduce the amount of time fund managers spend on identifying potential investments that fall short of the standards, and understanding the cause for non-compliance, in order to decide on the best course of action.”