More EU green funds re-badged amid regulatory drive – Morningstar

  • ‘Article 9’ funds with 175 bln euros downgraded in Q4
  • Move accounted for 40% of the category’s assets
  • Moves came ahead of more stringent reporting rules

LONDON, Jan 26 (Reuters) – Asset managers downgraded funds holding a total of 175 billion euros ($190 billion) of assets from the European Union’s highest sustainability classification in the fourth quarter, Morningstar data show, continuing a recent trend amid tighter regulations.

The EU’s Sustainable Finance Disclosure Regulation (SFDR), which aims to tackle misleading claims from managers over their sustainability efforts, is gradually being rolled out and from January required more detailed information to back them up.

Ahead of that, European Supervisory Authorities (ESAs) had sought to clarify how to apply elements of the regulation. Yet many managers said questions remained, particularly around what qualified as a ‘sustainable investment’.

As a result, many opted to reclassify their funds as ‘Article 8’, which carries with it less onerous reporting requirements, from the highest level, Article 9.

Overall, 419 products saw their status change in the fourth quarter, of which 307 were cut from Article 9 to Article 8, some 40% of the ‘dark green’ category, continuing a trend begun earlier in the year, Morningstar said.

“Almost two years after SFDR came into force, the landscape of funds marketed as green in the EU is going through some radical changes,” Hortense Bioy, Global Director of Sustainability Research, Morningstar said.

“We expect the recent wave of Article 9 fund downgrades to continue, raising questions about what will remain and how useful that category will be.”

Reporting by Virginia Furness
Editing by Simon Jessop and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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