By Tommy Wilkes
LONDON – Assets in European funds marketed as sustainable have hit 4 trillion euros — almost 40% of all assets managed in European Union-domiciled funds — Morningstar said on Monday in the latest sign of soaring demand for products considered greener.
Investment funds marketed as sustainable under the EU’s Sustainable Finance Disclosure Regulation managed 4.05 trillion euros in assets ($4.63 trillion) at end-2021, Morningstar said in a new report. That is up from about 2 trillion euros in April last year shortly after the rules were introduced.
The growth is down to investors putting more money into products that tout environmental, social and governance (ESG) goals, and as managers reclassify more of their existing products as sustainability-aligned.
Under the new regulations — an attempt to deliver transparency for investors trying to make sense of the many ESG investment products — managers can classify their funds under different Articles.
Article 9 means they are fully focused on sustainable objectives while Article 8 means the funds promote “among other characteristics, environmental or social characteristics, or a combination of those characteristics”.
Investments classified as Article 6 are traditional products not focused on sustainability.
While the EU’s new regime has been hailed as a significant boost to transparency, critics say loose definitions have allowed managers to take very different approaches to how they classify their funds.
That has led to a wide range of products, from ‘light green’ funds with limited claims to sustainability, to climate-focused ‘dark green’ products marketed under the same categories.
Morningstar said some funds classifying themselves as sustainable had made no changes to their portfolio, such as selling out of certain companies or sectors.
“Such light-touch and business-as-usual approaches have legitimately raised concerns that asset managers are greenwashing their product ranges,” the report’s authors said.
Investors “could be misled in thinking that funds marketed as promoting ESG characteristics or pursuing sustainable goals” were different from funds not marketed as such.
“That said, it is also important to keep in mind that SFDR classification is about disclosing relevant ESG information, but it doesn’t constitute an ESG label and additional analysis and metrics are required to assess funds’ ESG credentials,” the authors added.
Morningstar said in the fourth quarter of 2021, Article 8 and 9 funds captured 64% of all European fund inflows — up from 41% in the second quarter.
Since SFDR’s introduction, almost half of all new fund launches have been under Articles 8 and 9.
Morningstar’s analysis covered 91% of the funds domiciled in the EU.
($1 = 0.8750 euros)