Asset managers are "more worried than ever about greenwashing accusations", Morningstar global director of sustainability research Hortense Bioy said. Speaking on 14 June at the Sustainable Investment Festival Bioy said only 18 European Article 9 funds launched in the first quarter of this year, a decline on the previous two years when at least 40 Article 9 funds launched in each period.
She said this could partly be attributed to the poor macroeconomic environment and general market sentiment, but ultimately the "slowdown in product development" could be somewhat due to greenwashing fears.
Bioy also credited fears around greenwashing to the "wave of reclassification" from Article 9 to Article 8 at the end of last year; however, she said: "We now think the wave of declassifications is over."
The number of downgrades from Article 9 to Article 8 fell from 307 in Q4 2022 to just 14 in Q1 2023, she added.
However, Bioy noted that inflows to sustainable funds have still "grown significantly", with positive flows every quarter since Morningstar began tracking them in Q3 2019.
Looking to the UK, Bioy said these inflows were even more resilient, which she had been "surprised" by.
Minimum sustainable investment
Using Morningstar data, Bioy said there had been a slight increase in the minimum committed percentages of sustainable investments above 20% in Article 8 funds.
Furthermore, Bioy said the number of Article 9 funds with minimum committed percentages of sustainable investments below 70% had fallen rapidly to almost zero since December 2022.
However, Bioy warned against relying on this metric, comparing the Invesco MSCI World ESG Climate Paris Aligned UCITS ETF and the Amundi MSCI World Climate Paris Aligned PAB UCITS ETF, both of which track the same index, but have minimum percentages of sustainable investments of 50% and 5%, respectively.
"That actually is a bit confusing for investors and advisers, hence the need to go beyond those headline figures, and really understand the methodologies that are used by asset managers," she said.
However, a large number of Article 8 and 9 funds still have exposure to fossil fuels, she said.
"More than a third of Article 9 funds have at least 5% exposure to fossil fuels. That may come as a surprise to some investors," Bioy added.
She explained asset managers are "free to interpret" sustainable disclosure regulations, and many may be invested in ‘transitioning' firms that still hold exposure to fossil fuels.
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