EUROPE: ESG and sustainable fund market worth estimated €2.5trn.

As published on internationalinvestment.net, Wednesday 31 March, 2021.

The European ESG and sustainable fund market, based on SFDR definitions, could currently be worth as much as €2.5trn, according to new research by fund analysis group Morningstar.

Based on its preliminary data, Morningstar estimates that funds classified as Article 8 and 9 currently represent up to 21% of total European funds and up to 25% of total European fund assets.

It expects these numbers will increase in the coming months as asset managers see SFDR as an opportunity to demonstrate their commitment to sustainable investing.

Managers have plans to enhance existing strategies, reclassify funds, and launch new ones that will meet at least Article 8 requirements. Morningstar added.

In this first classification exercise, asset managers have taken different approaches based on their interpretation of the regulation, with some preferring to take a conservative approach for fear of having to downgrade funds later.

Classification approaches vary widely, resulting in a wide range of investment products classified as Articles 8 and 9.

Hortense Bioy, Morningstar's global director of sustainability research, said: "It is clear from the asset managers we spoke to, of various nationalities and sizes, that it is essential for them to have as many funds as possible classified as Article 8 or 9 under SFDR.

"They see compliance with at least Article 8 requirements as an opportunity to demonstrate their commitment to sustainable investing. Morningstar will continue to watch this space closely and develop the tools that investors need to navigate through it."

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