Asset managers struggle without ESG registration

investmentnews.com:

Asset managers trying to sell funds in Europe are finding it “increasingly difficult” to do so unless their products are registered as ESG, according to a study by analysts at Goldman Sachs Group Inc.

The research comes more than two years after the European Union enforced its Sustainable Finance Disclosure Regulation, a landmark ESG investing rulebook with global reach designed to stamp out greenwashing and direct capital into sustainable activities. Since 2019, the same year lawmakers first adopted SFDR, its two ESG categories — Articles 8 and 9 — have received 3.4 times as much in client flows as their non-ESG counterpart — Article 6, according to the Goldman analysis.

The new regulatory world order has had “significant impacts on capital flows,” Goldman analysts including Evan Tylenda and Grace Chen wrote in a note published on Monday. Conversations they’ve had with industry insiders show it’s “increasingly difficult to market Article 6 funds,” they said.

It’s a reality that’s putting ever more pressure on the fund industry to slap an ESG label on as much as possible, or risk losing client allocations. That’s leading some asset managers to test the limits of the EU’s weakest ESG fund designation — Article 8 — which has now been applied to roughly $6 trillion worth of portfolio assets, according to Bloomberg Intelligence. Recent examples include a Bitcoin exchange traded fund, which drew criticism from environmental experts. 

At the same time, roughly a third of Article 8 funds don’t target any sustainable investments, while the rest peg their ESG claims to a wide array of hard-to-pin-down goals, according to research by Morningstar Inc. To register a fund as Article 8, an asset manager needs to promise to “promote”