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Friday Funds: EU regulators may consider ESG risks in fund manager assessments

The latest developments in ESG-related funds

EU regulators may consider ESG risks when assessing the viability of business models of fund managers under a new regime that will subject large investment firms to the same prudential rules as deposit-taking banks. According to a joint consultation launched yesterday by the European Securities and Markets Authority and the European Banking Authority, this will feed into an overall scoring system which will allow comparison among peers. Investment firms will also have to provide detailed breakdowns of their voting behaviour at portfolio companies to comply with new requirements introduced by the EU Investment Firm Regulation and Directive. 

 The Index Industry Association has found a 43% surge in the number of ESG indices, marking the largest year-on-year increase in any sector over the past five years. The body’s fifth annual benchmark survey identified the increase as its top trend, also noting that “ESG fixed-income indices increased by 61% – a record in fixed-income index growth”.  

The findings come alongside research from Lyxor showing that more than half of total inflows into Exchange-Traded Funds last month were into those with ESG themes. €6.5bn was allocated to such funds in October, with more than a third going to globally-focused ETFs, followed by allocations to US and European strategies. Cumulative inflows this year for ESG ETFs stand at just under €70bn. 

Australian fund manager Gunn Agri Partners has raised A$100m (€64.2m) at the first close of its Transforming Farming Platform, with A$50m commitments from the Australian government’s Clean Energy Finance Corporation and the SDG Kempen Farmland Fund. The platform invests in small and medium-sized farms in Australia, with performance fees tied to the sustainability performance of its assets. 

The fees for global equity strategies with ESG requirements has fallen by 14% since 2016, according to a study by consultancy bfinance. As more managers enter the ESG space, competition for assets has increased and fees have subsequently been driven down, bfinance said, with the management fees for renewable energy infrastructure strategies also down 8% over the last five years.  

US start-up Sphere has partnered with Reflection Asset Management to launch a fossil-free S&P 500 fund aimed at the 401(K) investment market. The fund, which has also received investments from Eliot Horowitz, co-founder of tech firm MongoDB, and Rockefeller scion Clay Rockefeller, tracks an index composed of the 500 largest companies in the US, excluding around 40 fossil fuel producers. 

Amundi subsidiary CPR Asset Management has announced plans to launch a strategy investing along “the entire hydrogen ecosystem”, including producers, users and storers of green hydrogen. 

Private fund manager Spring Lane Capital has raised $151m in the first close of its second sustainable infrastructure fund. The commitments represent just under half of the fund’s $400m target, with the capital earmarked for “catalytic” investments in energy, food, water, waste and transportation, Spring Lane said.