There is about every fourth euro in a fund that is marketed as sustainable according to EU disclosure regulations. This is the result of a preliminary evaluation conducted by the Morningstar rating agency, and it is available to FONDS professionally online.

The data is preliminary, but it can still be used as a good first indication of how the asset management industry is dealing with the new set of rules. So far, there have only been scattered reports from service providers on how their money has been classified. There was no overview of the standalone market.

Three product categories
To understand the results of the Morningstar study, it is necessary to consider some points in the disclosure regulation. The EU regulations, which went into effect on March 10, actually create three product categories: Article 6 includes “regular” funds that do not place any explicit emphasis on environmental or ethical aspects. Article 8 describes “light green” funds that take environmental or social criteria into consideration in the investment process. Article 9 is for “dark green” funds that pursue clear sustainability goals. Depending on whether the fund falls under Article 6, 8 or 9, it must comply with various levels of disclosure requirements.

Product providers classify their products themselves and should indicate this in their sales prospectus. They are very interested in classifying as many products as possible as sustainable, because more and more investors want to invest their money in an ESG compliant manner. It’s easy to market the rating according to European Union regulations because it looks like some kind of seal of approval to the outside world, but it isn’t: the set of rules, as the name suggests, is intended for disclosure rather than a qualitative statement as to how sustainable it is, the fund really invests. Auditors and supervisory authorities then only check whether the service providers are meeting their transparency obligations.

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Approximately 5,700 sales brochures have been evaluated
In order to get an initial overview of how the industry is handling the new regulations, Morningstar has now laid out an initial budget based on a comprehensive sample. Data experts at Analysis House evaluated the sales prospects for 5,695 open-ended mutual funds and ETFs in Luxembourg exactly on March 29. This corresponds to nearly half of all private assets from the fund’s largest European home.

18 percent of these funds are classified according to Article 8, and another 3.6 percent meet Article 9. In terms of assets managed, these products represent 25 percent of the world of funds analyzed. If this share were extrapolated to the entire European market, the sustainability funds would manage around € 2.5 trillion. “We expect this number to grow in the coming months as asset managers expand their strategies, reclassify funds, and launch new products that meet Section 8 or 9,” wrote authors Hortense Bewey, Elizabeth Stewart and Andy Pettitt.

30 providers were analyzed in more detail
Morningstar also took a closer look at how they enforced the rules at 30 providers, including international fund giants as well as small investment shops specializing in sustainability.

The differences are enormous: while French billion-dollar asset managers Amundi and BNP Paribas have rated 529 and 310 funds respectively under Article 8 or 9, the leader in the larger market, Blackrock, has only 103 rated products. According to Morningstar, the asset management divisions of major banks UBS and JP Morgan are currently only rating 54 and ten funds accordingly.

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Many service providers will continue to reclassify funds
If you place the amount of funds classified as sustainable in relation to the total assets of service providers that are subject to disclosure law, then the ratio of Article 8 or Article 9 funds of Amundi is 60 percent and the percentage of BNP Paribas is 80 percent. Blackrock owns only 17 percent, and UBS 11 and JP Morgan Asset Management only 1.5 percent. However, several service providers have told Morningstar that they wish to divert additional funds to the Article 8 or Article 9 category in the coming months.

With some providers, the rate is actually higher: according to Morningstar’s analysis, the Robeco rate is 96 percent and the SEB is 82 percent. Even Mirova asset manager, who specializes in sustainable investments, ranks all 25 of his funds according to Article 9. (BM)


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