This analysis is by Bloomberg Intelligence Director of ESG Research EMEA & APAC Adeline Diab and Bloomberg Intelligence ESG Analyst Rahul Mahtani. It appeared first on the Bloomberg Terminal.
About $130 billion in climate-oriented funds are set to reclassify as Article 9, expanding the EU’s highest ESG fund designation by 30% after the European Commission’s April update to include green and transition investments. These upgrades would drive a 110% surge in assets into the dark green fund category to $250 billion, representing 70% of climate funds’ $345 billion. Bloomberg Intelligence’s new data helps investors track SFDR offerings for 23,000 funds.
Climate funds maintain growth despite reclassification frenzy
With the EC’s update allowing green and transition investments, $130 billion in climate funds may be reclassified into Article 9 — 70% from reversing downgrades and 30% from Article 8 clean-energy funds. These upgrades would entail a 110% increase in Article 9 climate funds to $250 billion and a 65% decrease in Article 8 to $72 billion, putting 70% of climate funds in the higher category. Mass downgrades since 4Q led to Article 9’s share shrinking to 35% from 58%, while Article 8 swelled to nearly 60% from 34%.
About 600 climate funds with $345 billion in assets are identified from BI’s SFDR database based on climate-related keywords in their name, description or attributes. Two sub-categories are also identified: climate transition (CTB) and Paris-aligned benchmark, representing 33% of assets with clean energy at 20%.
Recently downgraded CTB/PAB funds set to jump back to article 9
About 85% of the $90 billion in climate fund downgrades to Article 8 from Article 9 since December are in climate-transition and Paris-aligned benchmark funds, and we expect the downgrades to be reversed for most of these funds — representing $75 billion. This disproportionately large share of CTB/PAB funds in the wave of climate-fund downgrades also means that over 90% of those funds currently in Article 8 were previously in Article 9. Of all the CTB/PAB funds, amounting to $107 billion, nearly 80% are in Article 8, and their imminent reclassification would lead to a return to pre-December 2022 conditions when nearly 90% were in Article 9.
Under EU rules, Article 9 funds are supposed to make environmental, social and good governance goals their objective.
Clean energy funds see few downgrades, also set for article 9
While climate funds focused on clean energy have been shielded from the wave of downgrades since 4Q, the $40 billion in Article 8 are also well positioned to be reclassified as Article 9 following the EC’s update allowing green and transitioning investments in sustainable investing. The total assets under management of clean energy funds have remained almost unchanged in the past year at $60 billion, and their breakdown by SFDR categories has also remained stable despite the reclassification turmoil, with almost two-thirds in Article 9 and one-third in Article 8.
Bloomberg
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