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1,500 funds risk losing Article 9 status over green investment level

Article 9 fundsMore than 1,500 Article 9 funds are at risk of losing their status, according to analysis by FE fundinfo.

Of the 6,000 funds analysed by FE fundinfo, 663 set the minimum level of investment in sustainable opportunities at 0%, while an overwhelming majority left the value blank. A specific figure has not been disclosed.  A further 780 funds listed their minimum sustainable allocation between 0.1% and 85%.

To be classified Article 9, or ‘Dark Green Funds’, a strategy must have a reduction in carbon emissions as its objective. Such objectives must be tracked against an EU transition benchmark, alongside other ESG factors such as good governance procedures.

FE fundinfo said its analysts were concerned about how fund houses were utilising instruments designed for secondary requirements, such as liquidity and hedging, as a means of subverting Article 9 objectives.

Fund classifications may need to be reviewed as a result, the analysis provider said.

"Even if it is assumed that all of those Article 9 funds with no stated minimum in sustainable investments will end up with close to 100% when they update their prospectus and populate the field, that still means that at least 1,500 funds might need to review their Article 9 status," FE fundinfo said.

"It will be interesting to see which way this goes - will Article 9 funds tighten up the investment criteria or will groups start to reclassify funds as Article 8, which have no minimum requirement for sustainable investment?”

A total of 79 funds were reported to have a minimum sustainable investment threshold fo 100%, while a further 168 reported a value of 90%.

The analysis, gathered through an evaluation of European ESG Templates (EETs), follows the introduction of the frameworks in March on the back of amendments to MiFID II regulations. EETs were introduced to help standardise data and practices within ESG products across the EU and comprise 580 fields, some of which are conditional, alongside country-specific requirements.

Data on the value of funds at risk of losing classification was not shared by FE fundinfo.

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