SFDR reclassifications plummet 80% in Q2 2023, prompting regulatory review
Bloomberg Intelligence (BI) has unveiled a startling revelation: reclassifications under the Sustainable Finance Disclosure Regulation (SFDR) witnessed a staggering 80% drop in the second quarter of 2023, leading to what experts are calling a “market freeze.” The analysis, based on an extensive study of over 25,000 SFDR funds categorized as Article 6, 8, and 9, highlights a significant departure from the previous year’s pattern of volatile shifts.
In contrast to this market slowdown, there was a notable 5% increase in combined fund assets within both Article 9 and Article 8 designations. Remarkably, Article 8 entered the illustrious “$6 trillion club,” adding $250 billion in assets. This achievement is noteworthy, especially considering Article 8’s relatively subdued growth rate. Adeline Diab, BI’s Director of ESG Research EMEA & APAC, emphasized that Article 8 continued to play a pivotal role as a versatile asset pool, accounting for a commanding 53% share of the total SFDR funds with an impressive $6 trillion in assets.
The data further reveals intriguing dynamics between different categories of reclassifications. Notably, transitions from the broad Article 6 category to Article 8 comprised a substantial 92% of the total $52 billion in upgrades. Similarly, downgrades from the elevated Article 9 to Article 8 represented a significant 94% of the $12 billion in downgrades. BI cites an illustrative example of this shift: BNY Mellon’s $7 billion money-market fund.
The report delves into the largest players in the landscape, with Credit Agricole (9%), BlackRock (7%), and BNP Paribas (5%) emerging as the dominant forces within the Article 8 category.
While Article 9 assets experienced a commendable 7% growth, the addition of only five new funds signals a cautious market sentiment amid regulatory uncertainty. Leading the Article 9 segment were Credit Agricole and Pictet, managing a substantial $44 billion and $31 billion in Article 9 assets, respectively.
Diab revealed that the European Securities and Markets Authority is taking proactive measures by initiating a Common Supervisory Action alongside national authorities. This collaborative effort aims to assess the risks associated with “greenwashing” and gauge asset managers’ compliance with existing funds and ESG regulations, reflecting a commitment to maintaining the integrity of sustainable finance practices.