The share prices of asset managers in Europe "have unexpectedly disconnected" from their estimated earnings, according to Mandeep Jagpal, an analyst at RBC Capital Markets in London.
Consensus earnings are up 7 percent since the end of the second-quarter reporting period, while share prices across the industry have fallen by 8 percent, he said in a client note on Tuesday.
After years of unchecked ESG claims, the fund management industry now faces a much tougher regulatory environment as authorities try to eradicate greenwashing.
The vigour with which potentially misleading claims of green investing are being challenged became clear in late August, when it emerged that Deutsche Bank's asset management arm DWS Group was being investigated in the U.S. and Germany.
DWS, which has denied it misstated the scope of its ESG business, has yet to recover from a 14 percent share-price slump triggered by an investor panic.
Amanda Blanc, the chief executive of Aviva, said the industry remains challenged by a lack of common ESG definitions across regions.
"We would say let's have a standardization, an international standardization of the language that we use, of the way that we describe ESG, so that people can be held to account," she said in an interview with Bloomberg Television on Tuesday.
For now, shareholders are wary of being caught out by revelations that asset managers have applied the ESG label too liberally. Because of the DWS example, the "implications of potential wider regulatory interventions into ESG across the sector may be acting as an overhang on the share prices," Jagpal said.
Meanwhile, there are signs that fund managers are adding the ESG label to products at a record pace, suggesting the industry may be less deterred by the regulatory crackdown than shareholders. According to an analysis by Jefferies, "ESG product launches and reclassifications in the third quarter have accelerated".
"The level of fund reclassification activity to sustainable funds in non-US funds (principally European) is surprisingly high," Daniel Fannon, an analyst at Jefferies, wrote in a client note on Tuesday. "So, in our view, the risk is that poor behavior is rife".
And given the regulatory climate, the first asset manager "that authorities identify as having over-embellished their ESG credentials is likely to be made an example of," Fannon said.
While shareholders have grown cautious, though, clients at the asset managers appear to be less so, according to the RBC analysis.
"We expect strong net inflows" at DWS in the third quarter, Jagpal said. He also expects the asset manager, which is due to report on Oct. 27, to continue investing into growth areas, which may eat into profit in the third quarter.
Amundi, which is due to report on Nov. 4, is likely to see a "slowdown from the high net inflows" that it enjoyed in the first and second quarters, Jagpal said.
Still, "despite elements of caution heading into third-quarter reporting" for DWS and Amundi, Jagpal said that "current valuations remain attractive".