Funds investing in “brown” or polluting companies would be hit far harder than environmentally-friendly “green” funds in a climate-related market shock, the European Union’s securities watchdog said on Wednesday in its first study of its kind.

Brown funds spread investments over a large number of the same companies, while green funds “herd” less, with each one investing in a different selection of companies, the European Securities and Markets Authority (ESMA) said.

“This suggests greater concentration risks existing across funds whose portfolios contain more polluting assets,” ESMA said.

ESMA published what it described as a first attempt to assess vulnerabilities to climate-related financial risks using data from 23,965 EU-based funds worth 10.7 trillion euros ($12.7 trillion).

“Within the European financial sector, investment funds are more exposed to climate-sensitive economic sectors than banks, insurers and pension funds. However, few investment fund climate-related financial risk assessments have been conducted,” ESMA said in its latest summary of market risks.

A preliminary climate risk scenario exercise showed that most brown funds’ losses ranged from 8% to 19% of affected assets, while losses in green funds ranged from 3% to 7%, ESMA said.

Brown funds also contributed more to total system-wide losses because they are more interconnected.

“This also relates to discussions around Environmental, Social and Governance (ESG) ratings for investment funds, and the need for greater fund transparency on exposure to climate-sensitive sectors,” ESMA said.

It looked at the growing use by investors of unregulated raters of company ESG scores as over 2.5 trillion euros in institutional assets globally track “inconsistent” ESG ratings.ESMA, which has called for ESG raters to be regulated in the EU, said the absence of a common definition for ratings leads to diverging performance, and investor and issuer confusion and misunderstandings.

“These issues are ultimately detrimental to investor confidence and to the transition towards a more sustainable financial system,” ESMA said.