Two-fifths of all European fund assets are ‘sustainable’
Around 40% of EU-listed fund assets under management, or €4 trillion, are marketed as sustainable.
According to Morningstar data, investment funds labeled as sustainable under the EU’s new sustainable finance disclosure regulation managed €4.05 trillion in assets under management, or €4.63 trillion. dollars, at the end of 2021, reports Reuters. By comparison, sustainable fund assets were valued at around €2 trillion in April last year after the introduction of the first EU rules.
The increase in sustainable fund assets has been attributed to increased investor demand for investments that adhere to environmental, social and governance principles, as well as managers reclassifying existing products as aligned with sustainable criteria.
Based on the new regulations, which were introduced to provide more clarity for investors looking for ESG-related investments, managers can reclassify their funds under different articles.
For example, Article 9 identifies investment funds that fully comply with the Sustainable Development Goals, while Article 8 indicates that funds include “among other characteristics, environmental or social characteristics, or a combination of these characteristics “.
On the other hand, investments classified under Article 6 are traditional products, which do not focus on sustainability.
EU sustainable financial disclosure has helped the industry better define ESG objectives and provide greater transparency on investment grade, but some critics have still warned that vague definitions have allowed fund managers to bend the rules. As a result, there is now a wide range of products, ranging from “light green” funds with limited sustainability goals to “dark green” climate-focused products that are marketed under the same item definitions.
Morningstar even noted that some funds classified as sustainable had made no changes to holdings, such as dumping certain companies or sectors that are not considered sustainable, but were given a free pass because their other holdings have success.
“Such lean, business-as-usual approaches have legitimately raised concerns that asset managers are greening their product lines,” Morningstar analysts said.
Investors “could be misled into thinking that funds marketed as promoting ESG characteristics or pursuing sustainable objectives” are different from funds not marketed as such, the analysts warned.
“Having said that, it’s also important to keep in mind that the SFDR classification is about disclosing relevant ESG information, but it is not an ESG label and additional analysis and metrics are needed to assess benchmarks. Fund ESG,” the report’s authors added. .
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