Friday Funds: Strong demand for Article 9 funds despite challenging market

The latest developments in ESG-related funds: ESG debt universe reaches $5 trillion; Morningstar launches series of impact ESG indexes.

There was strong demand for Article 9 funds in 2022, attracting €26 billion of new capital into sustainable funds, according to analysis from the European Fund and Asset Management Association. Despite a multitude of Article 9 downgrades to Article 8 in the second half of the year – as a result of SFDR clarification provided by the European Securities and Markets Authority in June last year – demand remained robust.

The ESG debt universe is set to reach the $5 trillion mark, with emerging markets representing around 15 percent of the market, according to analysis by the Institute of International Finance. The overall global debt market decreased by $4 trillion to around $300 trillion in 2022, marking the market’s first annual decline since 2015. The decline seen in 2022 followed a surge of activity during the pandemic year 2020-21.

Morningstar has launched a series of impact ESG indexes based on Sustainalytics’ ESG impact framework. The Global Sustainable Activities Involvement Indexes – comprised of nine equity indexes – span five environmental and social impact themes aligned to the SDGs. To be included in the indexes, companies must pass ESG screening tests and have significant revenue aligned to one or more of the themes. Index weightings are tilted towards companies with the greatest percentage of revenue derived from SDG-aligned activities to strengthen their exposure to impact themes.

Renewables investor NextEnergy Capital has held the third close of its NextPower UK ESG fund on £595 million ($712.8 million; €674 million), six months after its first close and two months after its second close. The Article 9 fund exceeded its target of £500 million and is aiming for a hard-cap of £1 billion. The private solar fund received commitments from investors including Border to Coast Pensions Partnership and the UK Infrastructure Bank. At hard-cap, NPUK is expected to produce enough clean energy to power around 500,000 households or offset nearly 200,000 carbon-emitting cars each year. NEC has acquired its first five utility-scale solar assets totalling 269MW, of which two are operational.