21% of total European funds under most stringent SFDR rules

European ESG fund market worth €2.5trn

Pedro Gonçalves
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The SFDR requires asset management firms to classify each fund as either Article 6, 8, or 9
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The SFDR requires asset management firms to classify each fund as either Article 6, 8, or 9

Funds subject to higher standards of disclosure under the SFDR currently represent up to 21% of total European funds and up to 25% of total European fund assets, research from Morningstar shows.

The EU Sustainable Finance Disclosures Regulation (SFDR), which came into force on 10 March, requires asset management firms to classify each fund as either Article 6, 8, or 9, depending on the product's sustainability objective.

Article 8 products are described in the SFDR as products which actively promote environmental or social characteristics, while Article 9 products have sustainable investment as their objective. Both categories are subject to higher standards of disclosure under the SFDR.

Some 20 days into SFDR, Morningstar had reviewed 49.3% of the 11,500 open-end funds and exchange-traded funds domiciled in Luxembourg, Europe's largest funds domicile.

Of these, 18.0% and 3.6% were classified as Article 8 and Article 9, respectively, representing combined assets of €768bn, or 25% of the reviewed Luxembourg funds universe.

Based on the preliminary data, Morningstar estimates the European ESG and sustainable fund market, based on SFDR definitions, could currently be worth as much as €2.5trn.

This figure is expected to grow as managers have plans to enhance existing strategies, reclassify funds, and launch new ones that will meet Article 8 and 9 requirements.

Hortense Bioy, global director of sustainability research, said: "It is clear from the asset managers we spoke to, of various nationalities and sizes, that it is essential for them to have as many funds as possible classified as Article 8 or 9 under SFDR.

Raising the bar: SFDR to lead to 'uptick in name and strategy changes' as firms adapt

"They see compliance with at least Article 8 requirements as an opportunity to demonstrate their commitment to sustainable investing. Morningstar will continue to watch this space closely and develop the tools that investors need to navigate through it."

In Morningstar's survey, which comprised 30 asset managers, French managers Amundi and BNP Paribas were revealed as offering some of the largest ranges of investment products classified as Article 8 or 9, with 529 and 310 funds respectively.

Morningstar's survey results also show that other managers have chosen to classify far fewer funds as Article 8 or 9. Asset management giant BlackRock has 103 classified products, while UBS and JP Morgan have classified 54 and ten of their funds respectively as Article 8 or 9 products.

On an relative basis, Nordic and Dutch asset managers feature among those with the highest proportion of Article 8 and 9 funds. Robeco has classified 96% of its funds as Article 8 or 9, while KLP and SEB have done so with 95% and 82% of their products respectively. Sustainability-focused boutique Mirova has positioned its full range of 25 funds in the Article 9 category.

Amundi and BNP Paribas, the two largest providers of Article 8 and 9 products in the sample, have classified 60% and 80% of their existing funds assets as such, respectively.

Other large asset managers, including BlackRock, UBS, and JP Morgan, exhibit much lower ratios at 17%, 11%, and 1.5% respectively.

Given that it is still early days for SFDR, most fund houses have announced they plan to bring additional funds into the Article 8 and 9 categories. Amundi is aiming to get 75% of its total fund assets categorised under Article 8 and 9 by the end of the year.

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