A Bloomberg analysis highlights that 3 out of 4 Article 8 SFDR funds include companies potentially exposed to exclusion rules related to sustainability, impact, and environmental terms.
Financial operators must comply by February 2025. The new sustainability guidelines from ESMA, the European Securities and Markets Authority, could impact 75% of Article 8 funds, forcing financial managers to change the names of their products or divest from certain assets to avoid violating the new rules on greenwashing.
This estimate comes from a Bloomberg analysis conducted on a sample of 2,770 European funds, revealing a significant difference. Article 8 funds are considerably more exposed than Article 9 funds: the new rules on greenwashing could affect 75% of the former but only 15% of the latter.
New ESMA rules on greenwashing: what they are, criteria, scope of application
On May 14, ESMA published the final report on the Guidelines regarding the names of funds that use ESG or sustainability-related terms. This document is a turning point, addressing the issue of the minimum criteria that financial products must meet to be considered related to the ESG space.
also read EU authorities explain how to improve the contrast of greenwashing in the financial sector
The Authority specifies the requirements for funds currently classified as Article 8 and Article 9 under the Sustainable Finance Disclosure Regulation (SFDR). Article 8 funds (“light green”) include products that promote environmental or social sustainability characteristics but are not focused solely on these aspects, while Article 9 funds (“dark green”) are products that set a sustainable investment objective and have a strong ESG focus.
To strengthen the European framework for sustainable finance, ESMA has more precisely defined certain sustainability-related terms. If used in the name of the fund, it must meet the requirements set out in Article 8 or 9 of the SFDR. However, the guidelines remain vague, as no comprehensive list of terms that could be considered ESG-related has been provided, which would trigger the exclusion rules.
Article 8 funds and the impact of ESMA rules
Bloomberg examined over 2,700 European funds to check for the presence of terms related to “sustainability,” “environment,” and “impact.” A total of 58%, or 1,620 funds, are exposed to at least one company that could violate exclusion rules related to fossil fuel activities. Including other types of exclusions, such as violations of UNGC and OECD guidelines, the number of non-compliant funds rises to 2,290: 82.7%.
Focusing on funds currently classified as ESG under the SFDR, nearly 75% (1,203 out of 1,602) of Article 8 funds include companies potentially exposed to fossil fuel exclusion criteria, compared to only 15% (248 out of 1,602) for Article 9 products.
