Money managers lower ESG ratings of funds by billions

Amundi and Deutsche Bank’s DWS Group are downgrading billions of dollars worth of ESG funds, adding to the sense of confusion spreading across the European wealth management industry as it digests tighter regulatory guidelines.

mundi is reclassifying nearly all funds listed under the EU’s highest ESG category, known as Article 9, said a spokesman for Europe’s largest wealth manager.

Instead, the funds will be classified as Article 8, the spokesman said, referring to the EU’s less strict environmental, social and governance class of funds. The decision reflects “a conservative approach” as Amundi seeks to adapt to the EU’s evolving regulatory environment, the person said.

According to data compiled by Morningstar Direct and verified by Amundi, Amundi had nearly €38 billion in Article 9 products at the end of October. A DWS spokesman said the downgrades affect around €2 billion in fund assets. Morningstar expects at least $85 billion (€82.5 billion) of industry-wide Article 9 funds to be downgraded in the coming weeks and months.

“We expect many, if not all, of what we call ‘climate-aware’ and ‘low-carbon’ funds to move from Article 9 to Article 8,” said Hortense Bioy, Morningstar’s global director of sustainability research.

Asset managers are purging their portfolios of the once coveted Article 9 label amid growing confusion over the EU’s anti-greenwash regime, the Sustainable Finance Disclosure Regulation (SFDR).

The framework, intended to be the global gold standard for ESG investing, has been tainted by seemingly endless loopholes and inconsistencies, which have struck companies like BlackRock, Axa Investment Management, Pacific Investment Management and Goldman Sachs Group’s NN Investment Partners.

The result is that Article 8 will grow in assets under management, while Article 9 will be much smaller, Ms Bioy said. This can anger clients who thought they had invested money in Europe’s top ESG category, only to find that is no longer the case. The development is also embarrassing for the EU, whose efforts to stay ahead of the rest of the world with its ESG investment framework are backfiring.

“Clearly, this means that the Article 9 fund category will shrink, both in terms of the number of funds and assets under management,” Ms Bioy said. The designation is expected to shift to “theme and impact-oriented funds that invest in companies with a focus on sustainable products and services,” which are often more small or mid-cap, or “bond funds whose proceeds go to fund green and social businesses.” contribute” restrict projects”.

SFDR was enforced in March 2021. However, the EU has since clarified key cornerstones of the regulation to require asset managers to reserve the Article 9 designation for funds that are 100 per cent sustainable, excluding hedging and liquidity needs. That’s a much higher bar than many expected, and the industry is now in the midst of a protracted correction as fund managers try to digest the guidance change.

Amundi said his downgrades are not an acknowledgment that the funds in question are now less sustainable.

The move “in no way calls into question the current level of requirements regarding the integration of effective ESG criteria and the sustainability characteristics of these funds,” said the spokesman. “This deliberately prudent approach is a response to Amundi’s concern to protect investors and distributors from a significant risk of confusion in the allocation of savings.” Money managers lower ESG ratings of funds by billions

Fry Electronics Team

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