Broad ESG funds toppled by ‘greener’ ones

According to research, investors in Europe are fleeing funds that support general environmental, social, and governance principles but are flocking to those that focus on specific “sustainable” investing objectives.

A recently published research reveals that article 8 products experienced outflows of €173 billion during the nine months ending in September, while mutual and exchange funds classified as Article 9 products under the EU’s Sustainable Finance Disclosure Regulation experienced net inflows of €32.8 billion.

Article 8 funds, also known as “light green” funds, must demonstrate that they generally advance environmental or social values. Contrarily, funds allocated under Article 9 have a stated goal of achieving a sustainable result.

Since Article 8 products are somewhat in-between products because they support ESG criteria but do not have a formalised ESG-driven investment approach, the current debate over “greenwashing” and the absence of clear standards for the categorization of funds by the respective SFDR article may be to blame.

“Run away from greenwashing — that would be the main theme there,” said one expert, adding that €93.1bn, well over half the Article 8 outflows, proceeded from ESG-related money market funds instead of equity vehicles.

However, the continued demand for impact-oriented sustainable investment is all the more impressive in light of the €333 billion in total withdrawals from the European fund industry in the first nine months of the year.

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