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.
The European Commission’s latest Sustainable Finance Disclosure Regulation (SFDR) revision is welcome after Article 8 defined funds surged 25% ($1.2 trillion collected over two quarters). A reversal of the classification back to Article 9 is likely in our view as sustainable-investment criteria becomes more flexible. Bloomberg Intelligence’s new data helps investors track upgrades, downgrades and asset managers’ SFDR offerings for 23,000 funds.
Uncertainty around SFDR has led to Article 8 funds swelling about $1.2 trillion captured since September. While $390 billion of Article 9 claim to be high-standard ESG funds, $5.9 trillion under Article 8 looks like a catch-all pool as of mid-April. The latest EU revision aims to restore market stability, yet we see it driving reclassification turmoil as sustainable-investment criteria broadens to include transition investments. This should reverse some of $124.1 billion Article 9 to 8 downgrades collected in 1Q. Currently, Credit Agricole (circa 8.5%), Blackrock (7%) and BNP (5%) are the largest Article 8 fund houses by total assets.
BI’s new data covers over 23,000 SFDR funds enabling investors to track funds upgrades and downgrades in $ AUM and the number of funds covering asset managers and fund holdings.
SFDR article 8: $5.9 trillion catch-all funds’ label
Article 8 (accounting for 40% of all SFDR funds) have expanded 25%, adding $1.2 trillion over the past two quarters. Both downgrades from Article 9 and upgrades from Article 6 accelerated as shown in data collected in 1Q — by 117% and 48%, respectively — leading to a $5.9 trillion Article 8 pool. As a result, the latter has been emerging as a catch-all, hindering investors’ ability to distinguish between varying degrees of funds’ ESG credentials. That includes a mix of robust ESG funds, some of which offer “Paris-Aligned” solutions, and a suite of money-market funds from Goldman Sachs, Eurizon and Insight.
As the regulator continues to revise SFDR standards in an attempt to improve clarity, we expect further movements in the coming months amid higher scrutiny of the Article 8 label to better define its criteria.
SFDR article 9: $390 billion pool of higher-standard ESG funds
The higher Article 9 standards established in 2022 have led to a mass exit and wave of fund downgrades. But these higher standards were recently modified as the regulator allows for transitional and enabling investment within the Article 9 classification. While such change will almost certainly lead to another reclassification rodeo, the revision may help address some lingering ambiguity among Article 9 self-reported sustainable-investment claims, as well as Article 8 funds delivering stronger sustainable-investment results.
The number of Article 9 funds has dropped 7%, following a 20% decline captured in 1Q. As of March, they represented 3.8% of the number of SFDR funds tracked worth $11.3 trillion in aggregate.
Bloomberg
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