Of the €141bn net subscriptions into Luxembourg funds in 2020, two-thirds were attributed to sustainable funds. This compares to 44% for the rest of Europe. A recently-published survey* commissioned by ALFI gives greater insight into the ESG investing revolution.
Luxembourg is an above-average beneficiary of the sustainable investing boom, according to the “European sustainable investment funds study 2021” by the analysts zeb and Morning Star on behalf of ALFI. The country accounts for a third of assets managed via sustainable funds, compared to 12% in Ireland, Sweden and France.
Growing market share
Indeed, the Grand Duchy has been able to expand its market share in recent years. ESG funds accounted for 67% of net fund flows into Luxembourg last year, this figure was nearly double the figure for Ireland, the other leading cross-border fund domicile. The Grand Duchy outpaced Sweden (43%), which along with the other Nordic countries, has a trend-setter in green and socially responsible investing.
Ireland is a particular specialist for passive funds, and 20% of ESG funds were not actively managed, with the survey noting the rising share of ESG ETFs. Equity is the largest asset class, accounting for 60% of sustainable funds compared to 44% in conventional funds. The report noted that this enables “asset managers to exert a greater influence on the ESG efforts of companies.”
Double net assets
The study also amplified how sustainable investing is sweeping across the European fund industry. It now accounts for around half of all net fund flows, more than double the 2018 figure. The result is that 11% of all net assets of funds domiciled in Europe in 2020 used ESG principles, more than twice the 2018 figure. There was a similar proportion of sustainable funds for both UCITS and AIFs.
By this measure Luxembourg is still lagging some domiciles. Netherlands was in the lead in 2020 with 35% of net assets in sustainable products, just ahead of Sweden (29%) and France (26%). In Luxembourg, the share was 10%, but his is still three points ahead of Ireland.
The study also looked at the different ESG strategies of European funds. It found that just 1% of total net assets were allocated to more ambitious impact funds. However, the proportion of assets allocated to these “dark green” investments is on the rise, said the authors.
Article 8 or 9
Yet there appears to me a mismatch with these figures and how asset managers classify their funds. The sustainable finance disclosure regulation (SFDR) requires funds either to be registered as mainly exclusionary article 8 vehicles, or article 9 impact funds, or as article 6 with no specific effort made to be sustainable. The study found that in Europe, 3% were article nine funds and 28% were article 8. These proportions were slightly higher in Luxembourg.