Key takeaways
- From January 1, 2023, financial advisers must take clients’ sustainability preferences into account
- By 2026, ESG-invested assets are expected to increase by 50%
- To tap into ESG investment opportunities, more tools, guidance, and data will be available for Article 8 or 9 funds in 2023
Datia’s team prepared a list of 3 reasons why funds and asset managers taking sustainable investment seriously should be looking forward to 2023.
But first, let’s set a clear picture of the state of sustainable investing in Europe:
- Of funds in Europe by net assets: 20% are categorized as “Article 8” and 4% are categorized as “Article 9” under SFDR, according to a study of 2021 by EFAMA
- Sweden is the country where Article 8 funds have the biggest share of the market: 92%
- Another study, this time conducted by Morningstar, says that, at the end of 2021, 40% of EU-listed fund assets (the equivalent of €4tn) were marketed as sustainable, but 23% of these funds claiming to promote sustainability may not deserve such a label.
This data indicates that the ESG investment market has become a sizable one, but there is still a lot to be achieved especially when it comes to truly meeting the standards of an Article 8 or 9 fund.
For those funds stepping up to the challenge, 2023 will be a year to look forward to. Here are three clear reasons:
1) From January 1, 2023, financial advisers must take clients’ sustainability preferences into account
ESG-invested assets in Europe are on track to hit $19.6tn by 2026 compared with $12.8tn in 2021 - an increase of about 50%, according to a PwC study quoted by the Financial Times article “Navigating the sustainability maze”.
One of the main drivers for such growth is the EU Markets in Financial Instruments Directive II (EU MiFID II). This regulation established that financial advisers must take clients’ sustainability preferences into account when recommending products such as investment funds.
This obligation was supposed to be valid from August 2022 but was postponed to January 1, 2023.
2) In 2023, there will be better tools to standardize and present your sustainability efforts to investors
In practical terms, MiFID II represents a great opportunity for those Article 8 and 9 funds that are ready to present their sustainability reports. One of the ways to get your fund ready is to fill in the European ESG Template (EET).
The EET is a template introduced by FinDatEx to standardize the reporting of ESG metrics across Financial Institutions in Europe. It was also designed to be consistent with the requirements of both MiFID II and SFDR. In practical terms, the EET is a spreadsheet with almost 600 lines that you can download from FinDatEx’s website and fill in.
If you manage Article 6 funds, be aware that your fund is also expected to report the EET, even though Article 6 funds are not likely to satisfy clients’ sustainability preferences.
Read this article to learn more about EET and how to create your fund's EET with Datia.
3) In 2023, there will be more clarity on what is expected from funds and asset managers
Two very important tasks will be waiting for you in January: your first Principal Adverse Impact (PAI) statement and your first EU Taxonomy Eligibility report.
The PAI statement’s deadline is June 30, 2023. And your first EU Taxonomy Eligibility report should be presented together with your 2022 financial report.
The good news is that throughout 2022, a significant effort has been made by lawmakers and the industry to clarify the requirements to complete such tasks. Also, as companies start publishing their first documents, more reported data will be publicly available to enable funds to truly integrate sustainability into their investment process.
