Efama on 30 June released the latest issue of its market insights series, which focuses on sustainable funds. Net assets of article 8 funds--“light green” funds that promote environmental and/or social characteristics--increased to 45% of the total undertakings for collective investment in transferable securities (Ucits) and alternative investment fund (AIF) market, reaching €6.4trn.
“This latest issue of our Market Insights series zooms in on the SFDR [sustainable finance disclosure regulation], a key pillar of sustainable investing,” said Tanguy van de Werve, Efama’s director general in a press release. “EU regulation significantly impacts the development of sustainable finance and it will be important for the next phase of regulatory changes to provide clarity and stability to support Europe’s transition to net-zero.”
Net assets of article 9 funds--“dark green” funds that have a sustainable investment objective--on the other hand underwent “significant” reclassifications in the second half of last year, said Efama, due to the fund industry’s “conservative interpretation” of guidance that was issued by the European Securities and Markets Authority in June 2022.
Here are a few takeaways from the report.
Increase in article 8 funds
Efama in its report noted three main reasons for the “strong growth” in the net assets of article 8 funds between Q2 2022 and Q4 2022, which reached €6.4trn at the end of the year. These include the reclassification of article 6 funds to article 8 (400), the downgrade of article 9 funds to article 8 (348 funds), and new launches of article 8 funds (302).
After three straight quarters of outflows, article 8 funds saw net sales turn positive in the last quarter of 2022 (inflows of €143bn) and remain positive in the first quarter of 2023 (inflows of €20bn).
34% of article 8 funds domiciled in Luxembourg
Luxembourg remains a dominant core domicile of both article 8 and article 9 funds, found Efama’s report. The grand duchy had 34% of the market share of article 8 funds at the end of 2022, followed by Ireland (16%), France (14%), the Netherlands (10%) and Sweden (7%). These five countries had 82% of net assets of article 8 funds.
Article 8 funds were also domiciled in Germany (6%), Finland, Denmark, Belgium, Norway, Spain (2% each), Italy, Austria and Liechtenstein (1%). Greece, Hungary, Croatia, Slovenia, Slovakia, Poland, Portugal and Malta had funds domiciled as well (less than 1% of market share).
Article 9 funds see positive net sales
Net assets of SFDR article 9 funds decreased from €422bn in Q2 2022 to €341bn in Q4 2022, said Efama. However, these funds have continued to see inflows while article 6 and 8 funds saw outflows.
Luxembourg’s market share was even higher for article 9 funds--51%. France and Ireland were the next most common domiciles, with 18% of article 9 funds domiciled in France and 7% in Ireland.
In its report, Efama noted that the biggest issue concerning SFDR disclosures was a lack of “reliable standardised ESG data on investee companies,” and therefore suggests increasing harmonisation and clarity.
Concretely, some of their recommendations include:
- not introducing any future fund naming guidelines until the European Commission’s review of the SFDR is complete;
- aligning investee companies’ reporting of ESG data and fund managers’ ESG disclosure requirements; and
- ensuring ESG benchmark disclosures fit with user needs.
The association also recommends ensuring consistency in the interpretation and implementation of EU regulations across Europe, as well as leaving “time and room for industries” to transition to sustainability.
Find Efama’s full report “The SFDR Fund Market-State of Play” here.