Asset managers selling funds into the European Union risk having client flows “meaningfully” disrupted as regulators in the bloc consider a major overhaul of ESG investing rules, according to analysts at Barclays Plc.
The EU Commission opened the door to a wholesale review of the Sustainable Finance Disclosure Regulation last month, when it launched a consultation that has industry insiders bracing for years of upheaval. According to Mairead McGuinness, the EU’s commissioner for financial markets and services, the goal is to ascertain whether SFDR is in fact “fit for purpose.”
SFDR currently requires asset managers to split funds into three ESG categories: Article 6 , Article 8 or Article 9 . There are close to $6 trillion in funds “of various quality levels” registered as Article 8, “affecting the clarity and credibility of the system,” according to Bloomberg Intelligence analysts Clelia Imperiali and Adeline Diab.Stricter rules around the current Article 8 universe “could impact investment flows meaningfully,” Gordon and O’Neal said.
Analysts at Goldman Sachs Group Inc. have since released a study showing that a fund’s SFDR disclosure category can make a significant difference to client flows, with Article 9 emerging as the most coveted. The EU never intended for SFDR to be used as a labeling system, and under the current system there are “no clear sustainability rules, or minimum standards of what good looks like, nor is there a proper governance system in place to enable it to function as a fund label,” the analysts said.