These reclassifications follow the publication of the European Commission’s questions and answers in June 2021 and the announcement of the investigation by the AFM, the Dutch regulator, in September 2022, observes Morningstar. These clarified that funds classified under Article 9 can only invest in sustainable investments on the basis of the definition provided by Article 2 no. 17 of the Disclosure Regulation, with the exception of cash and assets used for hedging purposes.
NN IP was among the first asset managers to reclassify Article 9 funds to Article 8 funds in Q2, and downgraded nearly 20 additional strategies in Q3.
More recently, Deka Investment downgraded seven climate ETFs. Deka MSCI Climate Change ESG Select ETFs track benchmarks designed to reduce the carbon intensity of portfolios in accordance with the EU Climate Transition Benchmark. Deka noted that the underlying indices are not designed to include only sustainable investments as defined by SFDR; therefore, the funds could not retain their Article 9 classification.
Neuberger Berman also changed the status of four Section 9 funds to Section 8, including the Neuberger Berman Global Sustainable Equity Fund and the Neuberger Berman Systematic Global Sustainable Value Fund, for the same reason. Neuberger Berman indicated that originally she ” had set a minimum sustainable investment threshold of 80% for Article 9 funds “. Which is insufficient.
Axa IM has downgraded 21 strategies from Article 9 to Article 8 over the past few months and has announced plans to downgrade another 24 strategies in the near future.
In addition, at the end of September, Robeco announced that it would upgrade seven Article 9 strategies to Article 8, the two most important being RobecoSAM Global SDG Credits and RobecoSAM Global SDG Engagement Equities. According to Robeco, these strategies cannot be considered sustainable investments according to the SFDR definition because they invest in companies that can contribute negatively to the SDGs.
In light of all these recent developments, Morningstar anticipates a decrease in the number of products falling under Article 9 over the next six months from its current level of 1,080 funds (representing 4.3% of funds distributed in the EU).
Despite a decline in the universe, article 9 funds recorded inflows of 12.6 billion euros, double that of the second quarter, driven by passive strategies. In total, the assets of funds falling under Articles 8 and 9 increased by nearly 3% during the third quarter to reach 4.3 trillion euros. The market share of the assets of the article 8 and article 9 funds continued to increase and reached 53.5% at the end of September.