SFDR was designed to ferret out asset managers’ inflated ESG claims. The disclosure regulation requires firms to classify their investment products under one of three categories: Article 6, which address ESG risks; Article 8, which promotes ESG characteristics; and Article 9, which sets measurable ESG objectives that have to be met.
Bioy said that the “vast majority” funds that were axed from Morningstar’s ESG list were Article 8. “Some asset managers are opting for a softer approach than others,” she said.
There are currently about $4.05 trillion in assets being classified by the industry as Article 8 or Article 9 funds, Morningstar estimates. But the “lack of policy guidance” on how to define Article 8 funds has created “confusion and greenwashing concerns,” it said in a recent report.
European authorities have acknowledged that there’s a need to revisit some of the definitions currently guiding SFDR allocations. The European Commission said in October it is planning to introduce minimum standards for Article 8 funds in an effort to fight greenwashing.
The goal is “to create a baseline for sustainability performance when sustainability claims are being made,” Elodie Feller, sustainable finance policy officer at the commission, said at the time. “We see a lot of confusion in the market.”
For now, there’s still “an unexpectedly high number and broad range of products labeled Article 8 and Article 9,” Bioy said. The question is how long that will last.
—With assistance from Loukia Gyftopoulou.
This article was provided by Bloomberg News.