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Bouncing on the SFDR trampoline

All eyes are on asset managers with downgraded Article 9 funds after the European Commission clarified its thinking on a number of key SFDR topics, including the status of funds tracking Paris-aligned and Climate Transition Benchmarks.

With just over 300 funds dropping Article 9 status in Q4 last year, it remains to be seen how many managers will opt to reverse their decision.

Clients of some managers, however, may have already unsubscribed from product notifications.

Some funds were initially classified as Article 8, re-classified to Article 9,  and then dropped back to Article 8. With the EC removing the uncertainty which sparked these downgrades, another bounce on the SFDR trampoline could see them rise back to the heady heights of Article 9.

Take, for instance, BlackRock’s giant $10.5 billion iShares MSCI USA ESG Enhanced UCITS ETF.

Morningstar reported in February 2022 that the ETF, which tracks a CTB, had been reclassified from Article 8 to Article 9. It was subsequently dropped back to Article 8 in November last year as part of a cull of all but one Article 9 iShares funds.

Now that the EC has given the green light to Article 9 status for PABs and CTBs, could the fund see its third status change in as many years? BlackRock did not respond when asked about plans for its climate benchmark range.

This week in RI

Another week, another GFANZ departure – and another pushback against the inclusion of gas in the EU’s green taxonomy, this time in the form of legal action against the European Commission by four environmental NGOs.

Ahead of BP’s AGM next week, Responsible Investor revealed plans by UK pension pool LGPS Central to vote against the re-election of the firm’s chair in protest at the rolling back of commitments to cut oil and gas production.

In other proxy voting news, more investors lined up behind a proposal asking Glencore to account for its thermal coal production plans, LGIM co-filed a climate proposal at ExxonMobil on stranded assets, and CalSTRS vowed to vote against directors of firms that fail to match up on DE&I.

Also this week, RI was first with the news that the UNDP is in talks with governments, MDBs and investment banks about plans for a “tiger ecosystem bond”.

And finally, for a longer read, check out our capital market expert Dominic Webb’s deep dive into ESG and US muni bonds, and how a “staid and boring” market became the “Wild West for labelling”.

Quote of the week

“It does not answer the current questions at all, and it’s creating a tool that will be an official greenwashing label”

Mirova CEO Philippe Zaouati is never one to mince words, and he is not impressed with proposed revisions to France’s SRI label

GFANZ joiners

A clutch of recent exits from GFANZ groups – including Hannover Re‘s decision this week to join the exodus from the Net-Zero Insurance Alliance (NZIA) – may have given the impression that the initiative is on the ropes.

Yet the overall numbers tell a different story.

The Net Zero Asset Managers initiative attracted a slew of negative headlines when Vanguard announced its decision to leave at the end of last year and four smaller firms followed suit. But since September, the initiative has signed up 24 new names.

Over the same period, its asset owner and banking counterparts have each lost one member – Australian pension fund Cbus Super and Germany’s GLS Bank – but added 12 more.

The new members of the Net Zero Asset Owners Alliance, which represents $607 billion in AUM in total, include Industriens Pension, University Pension Plan, Group Versicherungskammer and MAPFRE SA.

Meanwhile, the Net-Zero Banking Alliance has attracted European heavyweights ABN Amro and Banco BPM, as well as Malaysia’s Maybank and UOB from Singapore.

Even the NZIA has added two new members since September: Samsung Fire & Marine Insurance and Canada’s Beneva.

Reports of GFANZ’s demise may have been premature.

‘New Article 9 fund launched’

The recent clarifications by the European Commission confirm (as pointed out by Morningstar’s Hortense Bioy) that the SFDR will remain a disclosure framework with no minimum standards to define “sustainable investment”.

In reality, though, the regulation will likely continue to be used and perceived by many as a labelling scheme to market fund products – new funds are still being announced with Article 8 or 9 as a key characteristic.

RI’s affiliate title New Private Markets reported this week that private markets investor Golding Capital Partners is working with auditors at PwC on a “shadow Article 9” system in a bid to align its non-EU fund investments with SFDR requirements.

“I don’t think Article 9 is very important, because I know the work we do using our [in-house] impact pathway captures the impact much more than Article 9,” Andreas Nilsson, Golding’s head of impact, told NPM. “But many mainstream investors – pension funds, insurance companies – that are less involved or less experienced with impact attach a signalling value to it.”

Of course, ESMA is also consulting on fund marketing guidelines, which could see the introduction of minimum standards or thresholds for funds using ESG or sustainability-related language in their names.

RI asked ESMA for an update on the initiative and a spokesperson for the regulator said it is digesting the feedback. Next steps will likely be announced in Q3.

Coming up next week

Another hurdle to clear for EU due diligence directive
The European Parliament’s Committee on Legal Affairs (JURI) is set to vote on its position on the bloc’s proposed due diligence directive (CSDDD) on Tuesday and all eyes will be on the extent to which financial institutions are covered by the directive.

The long-awaited draft of the directive, which would impose mandatory human rights and environmental due diligence requirements across the market, was published by the EC in February 2022. Reactions were mixed, but the draft has been broadly welcomed by the investor community.

AGM watch: BP, US banks
All eyes in the UK will be on BP’s annual meeting on Thursday, when investors will have their first chance to push back directly against the energy giant’s plans

Across the Atlantic, several climate proposals will go to the vote at US bulge bracket banks, including a new one from New York City pension funds calling for 2030 absolute emission reduction goals for high-emitting sectors at Bank of America and Goldman Sachs. The duo will also face a fossil fuel phase-out request, along with Wells Fargo and Citigroup.

Today’s letter was prepared by the RI editorial team