Amundi’s US$48bil ESG fund call exposes a lot of holdouts

PARIS: There’s an awkward realisation spreading across Europe’s environmental, social and governance (ESG) fund-management market.

A wave of downgrades triggered by stricter regulatory guidance has exposed significant variations on how investment firms are interpreting rules for the European Union’s (EU)top ESG fund class, known as Article 9.

Amundi SA, Europe’s biggest asset manager, says it thinks Article 9 can now only be applied to a very limited set of products, which is why it’s stripping the label from almost all its €45bil (US$48bil or RM208bil) in such funds, effective this month. It currently holds about €3bil (RM14bil) of Article 9 funds, representing roughly 7% of its previous offering.

Jean-Jacques Barberis, director of the institutional and corporate clients division and ESG at Amundi, said clarifications from the EU likely mean that Article 9 should only be attached to “very ‘pure’ funds.”

These include “some green bond or social bond funds, plus some private asset funds where the rules are different,” he said.

Since the European Commission made clear Article 9 must be reserved for funds holding 100% sustainable investments, with allowances for hedging and liquidity, asset managers have stripped the tag from well over US$140bil (RM606.8bil) of client assets.

But not all firms are arriving at the same interpretation of what constitutes a sustainable investment.

Disagreement is emerging as to whether Article 9 can be applied to portfolios of publicly traded stocks, for example.

And there are questions as to whether so-called UCITS funds, for which diversification and liquidity requirements apply, might be hard to package as Article 9.

The strictest, narrowest interpretation of EU ESG investing rules implies that “it’s to some extent easier to construct an Article 9 strategy for a private fund than it is for a public UCITS fund,” said Tristram Lawton, managing associate at Simmons & Simmons.

“But it’s not to say that it’s impossible, there are UCITS funds which are Article 9, some firms have managed to do it.”

Amundi’s decision to apply a very strict reading of Article 9 rests on concerns that to do otherwise would risk “greenwashing allegations, potential legal risk, reputational questions for our clients,” Barberis pointed out.

One of the world’s biggest Article 9 funds is managed by the investing arm of Nordea Bank Abp. The Nordea 1 – Global Climate and Environment Fund, which is an actively managed €9.5bil (RM44.6bil) equity portfolio, won’t be reclassified, said Eric Pedersen, head of responsible investments at Nordea Asset Management.

“We haven’t downgraded anything yet and we – for the moment at least – don’t think that we will,” he said.

“We’re looking at this all the time and reviewing it, in light of new information that’s coming up. But I think we’re in a relatively good place because from the beginning we didn’t put very many funds into Article 9.”

Nordea manages a total of €10.5bil (RM49.3bil) in the product class.

The EU has yet to nail down a clear definition of “sustainable investment.”

One interpretation, namely that 100% of a company’s activities must contribute to an environmental or social goal, would rule out most equity funds and if that’s what the EU expects, then Nordea would have to downgrade, Pedersen said. — Bloomberg

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