Sustainable Finance Disclosure Regulation (SFDR) reclassifications dropped by 80% during the second quarter of 2023, according to analysis from Bloomberg Intelligence (BI).
A report from BI analysis 25,000 SFDR funds found the total number of reclassifications in Q2 dropped sharply to 194 funds from 945 in Q1, only 20% of the reclassifications seen in Q1.
These findings tally with Morningstar’s recent Q2 SFDR report, which found that following the wave of reclassifications at the start of the year due to the introduction of Level 2’s regulatory technical standards, Morningstar’s report found this trend to be easing off, with around 180 funds upgraded to Article 8 from Article 6 this quarter, while only six downgraded to Article 8 from Article 9.
However, the BI report finds a larger amount of assets invested in Article 8 funds than Morningstar, to the tune of $6trn, compared with $395bn in Article 9 funds.
“Article 8 continued to serve as a ‘catch-all’ pool in Q2, accounting for 53% of total SFDR funds,” said Adeline Diab, BI director of ESG research, EMEA and APAC.
BI’s model shows that the largest fund houses of Article 8 are Credit Agricole (9%), BlackRock (7%) and BNP Paribas (5%). Credit Agricole leads Article 8 in terms of the number of funds and assets, with 818 funds claiming to be ‘light green’, taking into account sustainable characteristics along with non-ESG traits.
Although Article 9 assets grew by 7%, just five new funds were added, based on data tracked by Bloomberg, reflecting market prudence toward SFDR reclassifications, and continued regulatory uncertainty. Credit Agricole (11%) and Pictet (8%) are the largest Article 9 fund houses as of Q2, according to Bloomberg data, managing $44bn and $31bn of Article 9 assets respectively.
According to BI, the slow in reclassifications may be due to firms waiting for regulatory changes.
For example, the European Securities and Markets Authority is due to launch a Common Supervisory Action with national competent authorities to assess how well asset managers are complying with the existing funds and ESG regulations, and gather information on greenwashing risks.