Latest updates on sustainability in the fund industry
“The regulator's intentions for sustainability regulation seem to be working” said Arnd Hesseler, a partner with the analysts zeb. Europe appears to be on course for half of funds to classified as different shades of green by the middle of next year.
By the end of July, 30% of assets sold in the EU were ranked as “light green” Article 8 funds, as defined by the sustainable finance declaration regulation (SFDR), according to a survey of data held by the analysts Morningstar. Meanwhile the share of “dark green” impact funds was 4%.
This proportion is set to increase from a third to at least a half by the middle of next year, said Hortense Bioy, global head of sustainability research with Morningstar. Greater industry familiarity with this topic and clearer regulatory guidance should enhance this trend. This is in response to pressures from the market as well as regulation, and in the first half of this year 50% of net subscriptions were in sustainable products, up from 21% in 2018.
Asset managers are both repurposing funds to make them green and launching new products. A total of 717 conventional funds were reclassified as sustainable in the first half of this year, more than double the figure for 2020. Meanwhile the number of new funds is on course to outstrip last year’s figure, with 342 launched in the first half of this year compared to 495 for the whole of 2020.
Is Greenwashing a concern?
The survey found a wide range of ESG approaches to classifying article 8 and 9 funds, with some seeing this a symptom that some players might be taking short cuts. However, Ms Bioy found a clear correlation between market wide SFDR classifications and Morningstar’s own ESG rankings.
Passives accounted for around a tenth of the total, compared to about one-fifth of conventional funds. “We do not necessarily expect that market share for passives to increase beyond that level,” neither with new nor repurposed funds, said Ms Bioy.
Targeting higher-hanging fruit
Complacency is a risk, warned the subsequent panel which discussed “Distributing ESG and impact investment solutions: do old recipes still work?” According to Stéphane Corsaletti Chief Investment Officer of distribution platform Allfunds: “recent growth of ESG products has been mostly from a supply effect whereby distributors put these products on their shelves, and this creates demand.”
“The next step is distributors taking ownership of assessing the ESG nature of the product that they're selling,” he added. For example, Allfunds make ESG data from a range of sources available to clients to enable them to conduct their own research.
The asset manager's role
“We are an asset owner, and the challenge and necessity is to conduct due diligence to ensure good quality guardianship and stewardship,” said Micaela Forelli managing director, Europe of the asset manager M&G Investments. “So it's a matter of not only covering the basics, but also looking into adding value and explaining more,” she added. Here she sees a role for digital tools to report in a more precise and frequent manner about investments, augmented with data analytics.
Three market trends
Three trends are emerging in this space, said Campbell Fleming, chairman and director of impact investment platform The Big Exchange: asset managers will start to work more closely with legacy and challenger banks; trusted brand entrants (including the likes of retailers) are entering the market; and tokenisation of funds would increase access. “These trends are in the process of turning savers into investors,” he said.