Sustainability focused funds see 20% growth with assets exceeding €5tn

There has been a 19% increase in the asset value of European sustainability funds over the last 12 months; they now stand at over €5.5 trillion, according to a report by the law firm Maples Group.

According to the analysis based on a review of over 26,000 funds across the two largest fund domiciles in the EU, Ireland and Luxembourg, this growth has been catalysed by the EU’s Sustainable Finance Disclosure Regulation (SFDR), which has been in effect for over three years.

Other key findings from the report showed that 28% of funds domiciled in Ireland and Luxembourg are sustainability-focused, classified as either SFDR Article 8 or Article 9 funds. Notably, 39% of all assets held in these domiciles are in sustainability-focused funds, and 51% of all new funds launched in Europe in 2023 are classified as sustainably focused.

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Additionally, the analysis showed that Article 8 funds, promoting environmental or social characteristics and investing in companies with good governance practices, accounted for 36% of assets in Luxembourg and Irish funds, with over 80% being retail products under the UCITS regime. Equity strategies make up 37% of these funds.
Article 9 funds, which have a sustainable investment objective, represent only 3% of funds but saw 7% of new launches in 2023. Notably, 40% of Article 9 funds invest in equities, 18% in debt, and 22% in private equity, more than twice the private equity percentage of Article 8 funds.

EU ESG Ucits projected to cross €9 trillion by 2027

Based on a review of over 26,000 funds from Ireland and Luxembourg, the report titled ‘SFDR Impact Analysis: A Comprehensive Review of ESG Integration in Europe’ is the second edition in a series examining the evolving landscape of sustainable investing in Europe.

Ian Conlon, Ireland Funds & Investment Management Partner and Head of the Irish Sustainable Investing team at Maples Group, said: “As our analysis demonstrates, SFDR is working as a catalyst for the transition to a low-carbon, more sustainable economy by increasing the flow of capital towards sustainable activities and enhancing the transparency and accountability of sustainability disclosures.”

Michelle Barry, Luxembourg Funds & Investment Management Partner, added: “The impact of SFDR remains pronounced in the retail/UCITS space in both Ireland and Luxembourg. This is driven by investor sentiment, regulatory requirements and traditional distribution channels. While the number of sustainably-focused alternative investment funds remains lower, that number is growing. This is particularly evident in Luxembourg, where there are significant growth trends for renewable energy and energy transition infrastructure funds.”

 

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