sustainable investing

As the year ends, asset managers across Europe are anticipating the launch of even more stringent requirements for sustainable investments. At the same time, it’s increasingly becoming clear that EU regulation leaves ample room for investment managers to choose for themselves how they describe their ESG or impact investments.

While the upgrade of SFDR funds is still in full swing, light green funds did not escape this year’s market violence. Article 6 and Article 8 funds saw a hefty outflow of assets. The greenest funds did manage to attract new assets.

Article 8 funds saw net outflows of 28.7 billion euros in the third quarter of 2022. This was reported by Morningstar in a press release this week. Article 6 funds clearly lost out with an outflow of 62.1 billion euros, according to the financial services provider’s data.

Sustainable investing may be taking the wider investment fund world by storm, especially in Europe. But when it comes to liquid alternative funds, the sustainable wave is less advanced.

Some in the liquid alternative space remain openly dismissive of sustainability as an investment principle. Certain liquid alternative providers use derivatives,  making it more difficult to integrate sustainability criteria. Derivatives are excluded from the EU’s Taxonomy.

It is a well-known fact: supertankers do not change their course easily. But once the decision is made on the bridge, the change of course is pushed with significant force and mass. Take BlackRock, the world’s largest asset manager. It lagged behind in making its policies more sustainable, but now, according to a letter, is offering its clients a veritable ‘one stop shop’.

Quintet Private Bank today announced the launch of the “world’s first multi-asset, climate-neutral investment fund”, Essential Portfolio Selection (EPS) Quintet Earth after raising some 280 million euros in funding. This UCITS fund “combines equal exposure to green bonds and low carbon equities”. The fund offsets associated carbon emissions through reforestation activities.

Energy sector equities are having a good year. In recent years, however, investors in the sector have had a rough time of it. With the rise of sustainable investing and the greater awareness that the world needs to move away from fossil fuels to put an end to climate change, investments in companies that are active in the field of fossil fuels are under a magnifying glass.

Faced with the recent strong growth of demand for sustainable investing products, the question can be asked: are fund distributors able to keep up with asset managers in equipping themselves to deliver what such investors are seeking? One participant at the recent ALFI Global Distribution Conference expressed some doubt.

In April this year, Auréus launched the Equities Blue Chips fund. The fund is in Morningstar’s highest rated percentile for sustainable funds. “That is amazing. The fund is not labelled as sustainable, and just this one is in the top percentile,” said Auréus’s Chief Commercial Officer Han Dieperink in an interview with Fondsnieuws, Investment Officer Luxembourg’s sister publication (for whom Dieperink writes regular commentary articles).

The average European family office has invested 16% of their assets sustainably. This is much more than their counterparts in the rest of the world, according to a survey by Blackrock.

Luxembourg is set to bear a big responsibility for making the green financial revolution happen.  But are the rules of game clear enough, with reporting set to begin in just over a year’s time? And what role can Luxembourg’s fund service providers play?