European funds continue to amend their classifications under the Sustainable Finance Disclosures Regulation
Nearly three-fifths of funds launched in the final quarter of 2023 were classed as sustainable, while four funds were downgraded from Article 9 status to Article 8 under the EU’s Sustainable Financial Disclosures Regulation, according to Morningstar Direct analysis.
Under the SFDR, Article 9 funds must have a sustainable objective, while funds that promote social and or environmental characteristics are designated as Article 8. Funds with no ESG characteristics are classified as Article 6.
In Q4 2023, 58 per cent of funds launched were either Article 8 or Article 9 — the highest number in any quarter last year. “The proliferation of products was notably prominent in equity and fixed income categories,” the report said, bringing 83 and 79 new products, respectively.
Amid concerns about being accused of greenwashing, there was a spate of downgrades from Article 9 status towards the end of 2022 and the start of 2023, although this trend has now slowed.
Four funds were downgraded from Article 9 to Article 8 in Q4 2023, including the BlackRock China Impact Fund. The managers of all four funds were contacted for comment.
A BlackRock spokesperson said in a statement: “Following a review of updated European Securities and Markets Authority guidance in 2022 and the requirement that all relevant investments in Article 9 funds be designated as sustainable investments, it has been deemed prudent to reclassify the fund as Article 8 under the EU’s SFDR.”
They added: “This does not change the fund’s objective or strategy.”
Of the eight funds upgraded from Article 8 to Article 9, meanwhile, Morningstar observed that two funds — the Federal Indiciel PAB Europe ESG and the Bantleon Global Challenges Paris Aligned Index-Fonds — were upgraded in response to a clarification from the European Commission in April 2023. Last year, the commission said funds tracking Paris-aligned and climate transition benchmarks qualify by default for Article 9 status.