European mutual funds that promote green investments saw assets increase by some 22 percent in the fourth quarter, to more than 4,000 billion euro, and will overtake traditional ‘grey’ assets in terms of asset volume no later than the summer of 2022, Morningstar said in a research report on the effects of the SFDR sustainability regulation introduced last year.
Morningstar said its analysis is based on the prospectuses of 91 percent of the investment funds available in the European Union. Investment funds under Article 8 of this regulation apply ESG criteria and are considered “light green”, while those falling under Article 9 have SRI as an explicit objective and are regarded as “dark green.”
At the end of last year, Article 8 and 9 funds collectively accounted for 42 per cent of total assets in investment funds available in the EU, excluding money market funds, funds of funds and feeder funds. Morningstar said it expects this number will reach 50 percent by mid-2022 or earlier, “as providers continue to improve strategies and launch new products that meet the requirements of the SFDR articles,” the analysts said in the report.
Inflows
While inflows into funds covered by Article 8 or Article 9 of the SFDR regulations were 8 percent lower in the last quarter of last year than in the previous quarter, inflows into Article 6 funds (“grey”) had a much higher 30 per cent decline. Altogether, 64 percent of the inflow in the period under review went into the two green flavours in the fourth quarter. In the third quarter, this was still 56 percent, in the second quarter 41 percent.
On an individual level, inflows into the article 8 funds were dominated by a short term yield fund from Muzinich and into an article 9 fund, a global equity fund from RobecoSAM.
Equities in particular
Equity funds, in particular, are well underway in their sustainability journey, as evidenced by the asset distribution shown by Morningstar. Half of the funds with an “8” rating are equity funds, two-thirds of those with a “9” rating.
In total, almost 29 percent of funds in the EU are SFDR 8 or 9 funds. At the end of September, this percentage was still 24.5 per cent. The number of funds that only promise to promote ESG characteristics is much larger than the number of funds that explicitly pursue SRI: about 25 percent fall under Article 8, over 3 percent under Article 9.