The Sustainable Finance Disclosure Regulation (SFDR) is a regulatory framework established by the European Union to enhance transparency in sustainable finance and promote investment in sustainable projects. Asset managers must provide specific information about their sustainable investment products, such as their ESG characteristics and sustainability goals.
Article 9 of the SFDR applies to funds that have an explicit sustainable investment objective, such as reducing carbon emissions. These are known as “impact funds” or “dark green funds.” Article 8 applies to funds that promote environmental or social characteristics or a combination of both and require companies to follow good governance practices. These are referred to as “light green” funds.
Due to the evolving nature of SFDR and a lack of clear guidance from the EU as to what constitutes a “sustainable” investment, certain National Competent Authorities, such as those in the Benelux countries, have indicated that they will apply strict criteria to dark green funds. Consequently, companies are taking a more cautious approach to ensure compliance and prevent confusion in the allocation of savings.
Amundi, Europe’s largest asset management company, has reclassified almost all of its most sustainable investment funds, worth approximately 45 billion euros, to Article 8 from Article 9. Other asset management firms, such as Robeco, NN Investment Partners, Kempen, Invesco, and Pimco, have also taken similar steps in recent months.
While Amundi is supportive of the regulations, the company believes that the current regulatory framework does not provide clear guidance on sustainable investments. Therefore, Amundi has taken a conservative approach to the levels of sustainable investment published in its regulatory documentation, leading to the reclassification of almost all of its article 9 funds into Article 8. This approach is aimed at protecting investors and distributors from confusion in the allocation of savings.
More than a year after the initial implementation of SFDR, Track insight data shows that as many as 70% of Article 9 ETFs have been reclassified to Article 8. Adjustments will be necessary over time to ensure that the frameworks remain fit for purpose in achieving their goals of greater transparency and comparability across sustainable investment products.
Although the reclassification of funds may appear negative, it is ultimately a positive development for the industry. It ensures that companies comply with evolving regulations and provide investors with transparent information about their sustainable investment products. As the regulatory environment continues to evolve, asset management companies will need to remain agile and adaptable to meet these changes.
Sources
https://www.robeco.com/en-ch/glossary/sustainable-investing/article-6-8-and-9-funds
https://www.morningstar.co.uk/uk/news/231438/esg-fund-downgrade-accelerates.aspx
https://www.funds-europe.com/news/esma-urged-to-reclassify-sfdr-labels
https://www.impakanalytics.com/sfdr-reclassification-article-9-transparency-reputational-risk/
https://www.etfstream.com/news/over-70-of-article-9-etfs-downgraded-to-article-8/
https://www.investmentofficer.lu/en/news/amundi-reclassifies-almost-all-article-9-funds-article-8