The asset management unit of BNP Paribas SA is stripping Europe’s top ESG designation from $16 billion worth of funds, adding to a tidal wave of reclassifications that the industry is blaming on unclear rules amid growing signs of anger from investors.
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BNP is downgrading 26 so-called Article 9 funds, as it and others try to interpret Europe’s rulebook for environmental, social and governance investing, known as the Sustainable Finance Disclosure Regulation. Of the funds being downgraded by BNP, 24 are index funds, it said in an email to Bloomberg on Friday.
The majority of its actively managed Article 9 funds, equivalent to about $20 billion, will be unaffected, BNP said. The move coincided with an announcement from Deutsche Bank AG’s fund unit DWS Group, which said it was removing the Article 9 tag from eight funds. They’re the latest in a string of such reclassifications, with Amundi SA revealing last week that it was downgrading almost $46 billion worth of funds.
The development has alarmed onlookers, with the head of Europe’s main retail investor organization now planning to meet with regulators and legislators to convey concerns that members are being exposed to greenwashing.
“We need to have much clearer guidance from the authorities to make sure we aren’t misled and we aren’t being sold greenwashed investment products,” Guillaume Prache, managing director of Better Finance, said in an interview.
The group, which represents roughly 4 million financial services users across 25 countries, has scheduled meetings with the European Commission and the European Securities and Markets Authority, he said.
That’s as the world’s biggest asset managers, including BlackRock Inc. and Pacific Investment Management Co., have revealed that they’ll need to downgrade tens of billions of dollars worth of so-called Article 9 funds. The reclassifications were triggered by fresh guidance from the EU Commission on how to interpret the bloc’s regulations.
“Asset managers will have to explain to their clients that they’re operating in an uncertain and rapidly evolving regulatory environment,” said Hortense Bioy, Morningstar Inc.’s global director of sustainability research. “Let’s be clear, the EU has set a very ambitious, but also extremely complex, disclosure regime.”
Morningstar has estimated that at least $85 billion in such funds will be downgraded to a less stringent ESG category, known as Article 8, in the coming weeks and months. That’s after the EU’s guidance that Article 9 funds must hold 100% sustainable investments, save for hedging and liquidity requirements, wrong-footed much of the asset management industry.
Read the full article here by Natasha White, Greg Ritchie, Steven Arons, Advisor Perspectives.
