In addition to the industry total, Axa Investment Managers removed the European Union's top ESG designation from at least $125 billion in portfolio funds.
The French investment firm, which said earlier this year it was downgrading 45 so-called Article 9 funds, said on Tuesday that the move has affected €20 billion $21 billion of portfolio assets. Axa spokeswoman said the figure represents market values at the end of June and includes open-ended funds and other mandates.
Asset managers including BlackRock Inc. Amundi SA and Goldman Sachs Group Inc., NN Investment Partners, have been stripped of the Article 9 designation after the EU said it must be reserved for 100% sustainable investments, with some allowances for hedging and liquidity. Morningstar Inc. said in its third-quarter analysis of the industry that less than 5% of Article 9 funds actually meet. The development risks angering clients and has resulted in criticism of the EU's environmental, social and governance investing rules, known as the Sustainable Finance Disclosure Regulation.
Europe's top retail investor group, Better Finance, has already demanded meetings with the EU CommissionEU Commission and the bloc's markets watchdog, ESMA, to seek assurances that such reclassifications aren't exposing client savings to greenwashing.
The chair of the ESMA, Verena Ross, said she intends to investigate greenwashing more closely. She said that a fund called itself one of the most significant identifiers of investment funds for investors, especially retail investors, and is a great marketing tool. Some funds are using ESG or sustainability-related terms in their names without needing to live up to the corresponding sustainability features. Axa's head of sustainability coordination and governance, Cl mence Humeau, said the firm's goal is to explain the long-term intention and short-term challenges of the EU rules to clients. In October, she said that it was all about being proactive and transparent in our communications with clients.
She said that the wave of reclassifications has led to questions about the value of SFDR designations. There is now a widespread understanding of the limitations of the system, according to Humeau.
According to Mairead McGuinness, the EU CommissionEU Commission is looking into the confusion surrounding SFDR fund classes and preparing a comprehensive assessment of how market participants are adapting to the regulation. She recently told lawmakers that asset managers have adopted a softer interpretation of the EU's ESG rulebook than was intended by its authors.
Asset managers have been liberal with their interpretation of SFDR, McGuinness said. She acknowledged that the industry is worried about the ramifications of misreading the EU's ESG rules.
She said she was aware of the concerns within the financial sector around legal and reputational risks. There is a lack of clarity, and investors, supervisors and civil society are concerned. This creates opportunities for greenwashing. None of JPMorgan is trying to fix health care.