By Tommy Wilkes

LONDON (Reuters – The assets in European funds marketed for sustainability have hit 4 trillion euro — just 40% of the total assets in European Union funds. Morningstar announced Monday, in the latest sign that there is a high demand for greener products.

Morningstar reports that investment funds described as being sustainable by the EU’s Sustainable Finance Disclosure Regulation had 4.05 trillion euro in assets (or $4.63 trillion) at the end of 2021. The figure is almost double the amount of 2 trillion euros that was reported in April 2017, shortly after these rules were adopted.

The growth is down to investors putting more money into products that tout environmental, social and governance (ESG) goals, and as managers reclassify more of their existing products as sustainability-aligned.

Managers can now classify their money under various Articles, as part of new regulations.

Article 9 indicates that they are completely focused on sustainability objectives, while Article 8 signifies the funds support “among other characteristics” or environmental and social characteristics.

Article 6 investments are products that have a traditional focus and do not aim to be sustainable.

The EU’s new rules have been widely praised as being a major boost for transparency. However, managers are now able to adopt very different classifications of their money because they don’t follow strict definitions.

It has created a broad range of products, including ‘light’ funds without any claims to sustainability and climate-focused products that fall under the same category.

Morningstar stated that some funds classified as sustainable have not made any changes to their portfolios, like selling certain sectors or companies.

According to the authors of the report, “Such business-assual and light-touch approaches have legitimized concerns that asset mangers are greenwashing products ranges.”

“Investors could be deceived into thinking funds that promote ESG characteristics and pursue sustainable goals are different than funds not advertised as such.”

The authors said that SFDR classification is about disclosing pertinent ESG information. However, it does not constitute ESG labels and further analysis and metrics will be required to evaluate funds’ ESG credentials.

Morningstar reported that Article 8 and 9 fund captured 64%, up from 41% during the second quarter.

Nearly half the new fund launches since SFDR was introduced have taken place under Articles 8.

Morningstar’s analysis included 91% of funds domiciled within the EU.

($1 = 0.8750 euros)