By Tommy Wilkes
LONDON (Reuters) - One in four European funds have classified themselves as sustainable under new EU environmental, social and governance rules, Morningstar said on Friday, as managers try to appeal to investors pouring cash into sustainable assets.
Demand for ESG-compliant investment products is surging but confusion over what ESG claims mean in practice has spurred European policymakers to try and codify the sector to arm investors with more information and stamp out 'greenwashing', where lofty sustainability claims are not backed up by action.
The European Union's Sustainable Finance Disclosure Regulation, the first part of which went live in March, aims to harmonise standards and increase transparency in the growing market for sustainable financial products.
Fund managers can classify their products as either Article 9, which means fully focused on sustainable objectives, or Article 8, which means fully or partly focused on environmental, social or sustainability issues. Investments classed as Article 6 means they are not focused on sustainability.
Data provider Morningstar said close to 24% of the ESG open-end funds and exchange-traded funds domiciled in Europe it had examined are now Article 8 or 9 based on preliminary data, representing combined assets of 2.16 trillion euros ($2.61 trillion).
Hortense Bioy, Morningstar's Global Director of Sustainability Research, said the proportion of funds classifying themselves as sustainable less than two months after the rules went live was "surprising" given many managers are still analysing what the extra disclosure requirements entail.
She expects the number to grow in 2021.
"Some (fund) distributors say that they only want to distribute Article 8 or Article 9 funds. That is putting pressure on funds," she told Reuters.
Just over half of all investment flows in Europe in the first three months of 2021 went into sustainable funds, swelling sustainable fund assets by 17.5% over the quarter to a record 1.3 trillion euros, Morningstar said.
It was only the second time sustainable funds have pulled in more cash in a quarter than conventional funds, the first time being early 2020, Morningstar said in its quarterly report.
Climate-change-themed funds were again among the top selling products.
A wide variation in the approach to classifying funds under the new European rules has resulted in a broad range of investment products considering themselves to be "green", Morningstar said.
Europe's biggest asset manager, Amundi, has classified 530 of its funds as Article 8 or 9, according to Morningstar. BNP Paribas (OTC:BNPQY) has 313, while BlackRock (NYSE:BLK) has 103.
BlackRock attracted 17.1 billion euros into its sustainable funds between January and March, more than any other provider and ahead of UBS and Amundi.
($1 = 0.8279 euros)