Bloomberg Intelligence (BI) data revealed that Sustainable Finance Disclosure Regulation (SFDR) reclassifications dropped by 80% in the second quarter of 2023, causing a “market freeze”.
Based on analysis of over 25,000 SFDR funds classified as Article 6, 8 and 9, BI reported an 80% drop in SFDR reclassifications in Q2, which was in contrast to the past year’s trend of “erratic shifts”.
While climate funds have become eligible for Article 9 – the EU’s highest ESG fund designation – asset managers expect regulators to improve technical standards in H2, reported BI.
Despite the “market freeze”, combined fund assets in Article 9 and Article 8 rose by 5%. Article 8 entered the $6 trillion club by gaining $250 billion despite experiencing a slowdown in growth, BI noted.
Adeline Diab, director of ESG research EMEA & APAC, BI, shared that Article 8 continued to serve as a “catch-all” pool in Q2, accounting for 53% of total SFDR funds with $6 trillion in assets, Diab shared. “Reclassifications from Article 6 – the broadest class – to Article 8 made up 92% of $52 billion in upgrades, while downgrades from Article 9 to 8 represented 94% of $12 billion in downgrades.”
An example of a shift from Article 6 to 8 is BNY Mellon’s $7 billion money-market fund, said BI. The largest fund houses of Article 8 are Credit Agricole (9%), BlackRock (7%) and BNP Paribas (5%).
Although Article 9 assets grew by 7%, the addition of just five new funds reflected market prudence and regulatory uncertainty, shared BI. Credit Agricole and Pictet were the largest Article 9 fund houses as of Q2, managing $44 billion and $31 billion of Article 9 assets, respectively.
Diab informed that the European Securities and Markets Authority is launching a Common Supervisory Action with national authorities to assess “greenwashing risks” and how well asset managers comply with the existing funds and ESG regulations.
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