Although it was not the regulators’ intention for these Articles to be treated as product labels, this has, in practice, split the EU fund universe into three categories.
Each category is named after the relevant Article in SFDR: Article 6 are funds that integrate sustainability risks, Article 8 are funds with sustainability characteristics and Article 9 are funds that have sustainability objectives.
- SFDR Article 6: requires all fund managers to make disclosures on the integration of sustainability risks and their impacts on
the returns of the financial products they make available.
- SFDR Article 8: requires funds that promote sustainability characteristics to specify in pre-contractual disclosures how they
will promote environmental or social characteristics, or a combination of both, and that the companies in which the investments
are made follow good governance practices.
- SFDR Article 9: requires funds with a sustainability objective to specify in pre-contractual disclosures on how they will attain
such objective and whether an index has been designated as a reference benchmark.
Based on the EFAMA survey results featured in this publication, net assets of SFDR Article 8 and Article 9 funds amounted to
EUR 3.7 trillion and EUR 340 billion respectively, at the end of March 2021, with a relatively high concentration in a limited number of countries. Domestic market shares of SFDR Article 8 and 9 funds vary widely across European countries. These differences are not only driven by variations in actual amounts of ESG investing across countries but also by national regulators’ divergent interpretations of the SFDR Level 1 text. An ESG investment approach may not be restricted to the fund level, it can also be applied at the level of the firm or across part of the firm’s assets, for instance by excluding certain types of businesses, sectors, countries, or behaviours, or by integrating certain ESG risks and opportunities in the investment decision-making process. Looking at the firm-level, asset managers in Europe were managing EUR 11 trillion of assets using an ESG investment approach as at the end of Q1 2021. This includes assets invested in funds and discretionary mandates.
In the absence of Level 2 measures, the fund industry has so far implemented SFDR on a best-effort basis. The evolving legal in-
terpretation of the regulation especially in regards to the Taxonomy products disclosures in SFDR risk creating confusion amongst investors, as it will already apply on 1 January 2022 despite missing investee company disclosures and taxonomy screening criteria. Regulators need to take a common approach and avoid piecemeal changes for SFDR to raise investor confidence and increase transparency in a relatively new and fast-growing part of the European fund market...
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