Dutch investment bank Kempen Capital Management has reclassified three of its sustainability funds to “light green” from “dark green/most sustainable” ahead of increasingly stringent requirements that will take effect from 2023 under the EU’s Sustainable Finance Disclosure Regulation, known as the SFDR.
The adjustments were made in August and clients have been informed about the changes, said a spokesman. The changes were first reported by Citywire. Two other Dutch firms, Robeco and Goldman Sachs’ NN IP, have also recently downgraded SFDR classifications of their sustainability funds.
The funds, the Kempen (Lux) Sustainable Europe Small-Cap I, Kempen (Lux) Euro Sustainable Credit J and Kempen (Lux) Global Sustainable Equity I EUR, have combined assets of 872.25 million euro, the spokesman said.
‘Right moment’
“We thought this was the right moment to make the adjustment as we now had almost full information from regulators and industry groups while we could still timely and fully inform our clients,” said a Kempen spokesman, adding that the firm is among the first to bring its marketing information in line with the new SFDR requirements.
Luxembourg funds have also been asked to review all their prospectuses and marketing materials, known as “pre-contractual information” for their sustainability funds, and to notify . financial regulator CSSF by 31 October, next Monday, at the latest.
From January, when the so-called level 2 requirements under the SFDR’s regulatory and technical standards take effect, funds are required to have their sustainability data reviewed by financial supervisors.
Different thresholds across Europe
Some national regulators in the EU such as the Dutch AFM have made clear that they expect “dark green” Article 9 SFDR funds, also known as impact funds, to be fully loaded, for 100 percent, with sustainable investments. The threshold for “light green” Article 8 funds is lower. Among a lack of EU guidance, national regulators now are applying different levels for their thresholds. Luxembourg’s CSSF has yet to clarify its thresholds.
“The definition of thresholds is a fundamental question still under discussion,” a CSSF official told a panel last week at LuxFlag’s sustainable investment week.
Across Europe, investment firms are expected to adjust the classifications of their sustainability funds also because they do not want to be accused of possible greenwashing. Morningstar analyst Hortense Bioy has talked about “The Great Reclassification”.
Back at Kempen, the spokesman explained that, after SFDR level 1 was introduced in March 2021, a lot more clarity has been provided on the exact requirements for Article 9 funds by regulators and industry organisations.
‘Not solely invested in sustainable economic activities’
“While our sustainable funds have strong ESG characteristics (20% exclusion, high ESG ratings from MSCI ESG and Sustainalitics, external labels such as Febelfin and ISR, carbon reduction policy in line with Climate Transition and Paris aligned Benchmarks) these broad diversified funds do not solely invest in sustainable economic activities under the SFDR definition,” the spokesman said.
“We therefore think Article 8 is more appropriate, while Article 9 funds would be more suitable for more focused, impact funds or thematic funds that can show full exposure to the SFDR definition of sustainable economic activities. Furthermore, for all of our sustainable funds we have opted for a commitment to sustainable investment under article 8.”
“Importantly, the strategies of the funds have not changed,” the spokesman said. “The disclosure classification is a regulatory transparency requirement. That being said, we are very committed to continuously enhance our sustainability policies, ambitions and disclosures.”
Two Article 9 funds left
Following the reclassification, Kempen now has two Article 9 funds (Global Impact Pool and SDG Farmland Fund), around 25 Article 8 funds and around five Article 6 funds which are invested in non-listed companies “with not a lot of underlying ESG data available.” Article 6 funds are also known as “brown funds” as they do not claim to hold sustainable investments.
Judging from responses by Kempen’s clients, the firm has determined that clients are aware that Article 9 funds “are more suitable for thematic sustainability funds” that also come with a “different and concentrated risk profile”, the spokesman said.