The regulation designed to shake up the sustainable investing landscape in the EU is one month old. But is it achieving its purpose, or becoming 50 shades of green as asset managers try to interpret it?
Robeco has made a strong start to implementation, with 95% of funds classified as embracing sustainability under the Sustainable Finance Disclosure Regulation (SFDR) – a near totality figure that is considerably higher than the asset management industry average.
Recent research by Morningstar, based on a preliminary data set covering almost half of all of Luxembourg domiciled funds, shows that funds classified as embracing sustainability under Article 8 and 9 of the regulation represent up to 21% of total European funds by number, and up to 25% of total European fund assets worth nearly EUR 2.5 trillion.
Comparisons have become easier because, as its name suggests, the SFDR requires asset managers to disclose the levels of sustainability inherent in their investment products. This aims to enable end investors to assess whether a fund is truly sustainable, or whether the asset manager is indulging in greenwashing – the practice of only paying lip service to sustainability with a few token gestures.
The most visible and impactful element is the classification of funds and mandates into three categories labeled as Articles 6, 8 and 9 of the SFDR. Article 6 covers funds which does not promote any kind of sustainability into the investment process; Article 8 covers those that do promote environmental or social credentials; and Article 9 applies to funds targeting bespoke sustainable objectives.
No less than 95% of Robeco’s strategies are classified as promoting sustainability, encompassing the Sustainability Inside and Sustainability Focused ranges (83% under Article 8) and the Impact Investing range (12% under Article 9). Only 5% of funds that do not or cannot incorporate sustainability are classified as Article 6. As a pioneer of sustainable investing, this is pretty much ‘business as usual’ for Robeco.
“We have 25 years’ experience in sustainable investing,” says Masja Zandbergen, Head of ESG Integration. “We launched our first sustainable equity fund in 1999, the world’s first sustainable water fund in 2001, have been signatories of the Principles for Responsible Investment since 2006, and have integrated ESG across all our capabilities for over 10 years.”
“So, whilst these regulations are new, the underlying building blocks of sustainability have been in place at Robeco for a quarter of a century. We also see many firms committing to increasing their share of sustainable funds in the coming years, but for Robeco, we see our high level of Article 8 and 9 funds as a validation of our long history in sustainable investing.”
“This does not mean implementation was easy for us. We went through a thorough seven-step process to classify our funds. We owed it to our reputation to be ambitious, but we also needed to raised our game in certain areas.”
“We augmented, implemented and published our sustainability risk policy, and we became much more specific, publishing fund documents on ESG implementation, risk and data sources for all of our funds. From what I have seen, many market participants are pointing to existing policies whereas we really go very far when it comes to the transparency.”
So, has the SFDR made the impact expected, one month after it was launched on 10 March? The short answer is ‘not yet’; its debut has been 50 shades of green rather than the holy grail that some had hoped for. But it does provide clients with the right tools to ask tough questions before they ask an asset manager to invest on their behalf.
Whilst the classification system and the transparency it requires does provide some distinction between those funds which integrate sustainability and those which don’t, the differing implementation by managers still needs to be aligned.
Each manager’s classification of its funds – including Robeco’s – is the result of a self-assessment. There is still variation in how different managers have classified their funds. The required detailed disclosures regarding sustainable measures per fund should provide more insight.
“Whilst one of the keys aims of SFDR is to prevent greenwashing, it’s valuable for clients to know that many different shades of green still exist, even within a single classification” says Kenneth Robertson, client portfolio manager with Robeco’s Sustainable Investing Center of Expertise.
“In our case, for example, both our ESG-integrated (regular) strategies and our sustainable strategies are categorized as Article 8. It’s important therefore to be wary of looking just at a label, without understanding what’s going on underneath the surface. Read the actual disclosures and keep asking questions to your managers and expect answers.”
Moving from the assessment regulations in Level 1 to the more complex requirements of Level 2 should lift some of the fog. The Level 1 regulations lacked the concrete details of the regulator’s expectations, so some additional clarity has been provided in the Level 2 regulations, which should raise the requirements for classifying a fund as Article 8 or 9.
“Still the regulation is true to its name in that it requires a lot of transparency and is less prescriptive on what approach should be taken, which in theory still leaves room for a fair amount of greenwashing,” says Robertson.
“The good thing is that fund managers will soon need to begin reporting on green taxonomy alignment and on the 18 adverse impact indicators detailing the negative effects that the investee companies have on wider society.”
“These include topics such as carbon footprints, the effect of the company on biodiversity, and the board’s own diversity in its gender make-up. Fund managers will also have to show development over time and what their approach is to achieve progress on these indicators (if at all).”
He says these adverse impact indicators should help clients detect which funds are really living by the spirit of these regulations, and which are not, combatting greenwashing. “In the meantime, it is of great importance that clients continue to deep dive into the investment process, and the integration of sustainability into that, for any fund they are considering,” he says.
“Over the last month, it is clear that the regulations have been interpreted in a range of ways across the industry, and for now, there is no right or wrong answer provided by the regulator. Therefore, the key to the success of these regulations now lies with clients.”
“Ultimately, the SFDR can meet its stated aim to mobilizing capital and reducing greenwashing if clients have access to actual portfolio impact measures and start to ask the right tough questions.”
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
Please read this information carefully.
This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:
3. Local legal and sales restrictions
The information contained in the Website is being provided for information purposes.
Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.
4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.
5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.
6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.
7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.
8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.
10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.