Funds classified as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR) have registered the highest inflows since late 2021, netting €38 billion of new money in Q3 compared to €26.5 billion in Q2, according to Morningstar Sustainalytics. In its latest review of Article 8 and 9 funds, the data provider observed that actively managed Article 8 funds also continued their flow recovery by garnering close to €27 billion in Q3 – with fixed income remaining the key contributor to Article 8 inflows. This, however, paled in comparison to Article 6 fund inflows, which amounted to €96 billion – indicating investors’ continued preference for those. Combined assets in Article 8 and 9 funds remained quasi-stable at €6 trillion, accounting for 61% of EU fund assets – though redemptions from Article 9 funds continued for the fourth consecutive quarter as investors pulled €2.2 billion out of these strategies (a small number compared to €6.5 billion previously). Newly incepted Article 8 and 9 funds, although declining, continued to represent more than half (56%) of the total number of EU fund launches. “A worrying trend for this segment of the market is the continuously low interest in the darker green strategies, as represented by Article 9 funds and those Article 8 funds with high commitment levels to sustainable investments,” said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics. “This could be due to several reasons, including elevated interest rates which still plague green stocks, the uncertainty around the impact of anti-greenwashing rules on ESG strategies, as well as a general preference for mainstream exposures in the current macro and geopolitical environment.” About 86 Article 8 and Article 9 funds closed in the third quarter, compared with 209 Article 6 funds, and reclassifications reached their lowest level at just over 10 – mostly to Article 8. So far this year, 104 Article 8 and Article 9 funds have changed names, of which 42 added ESG-key terms, 42 dropped ESG-key terms, and 20 swapped ESG-key terms. About 75% of Article 8 funds reported making some sustainable investments, while more than half (52%) held at least 30% of sustainable assets. Sustainalytics said it expected changes to the universe of sustainable funds to intensify in the coming months, ahead of deadlines for new anti-greenwashing regulations – including the EU’s fund name rules.

Global asset manager Aviva Investors has launched the Carbon Removal Fund (CRF) to provide institutional investors with access to carbon-removal solutions that deliver strong financial returns. The CRF will target investments in nature-based and engineered carbon removal solutions generating high-integrity carbon removal credits as part of a blended portfolio. It will invest in afforestation and restoration projects across peatlands and mangroves, as well as commercial forestry, venture capital and private equity-backed nature tech, and alternative carbon removal companies. The fund will prioritise co-benefits, such as biodiversity enhancement, improved water quality and employment. “Investors have been consistent in calling for investment strategies that can deliver long-term performance whilst also helping them to align with net zero ambitions,” said Daniel McHugh, Chief Investment Officer at Aviva Investors. “This is a fund designed for investors with ambitious decarbonisation pathways in place and who are looking for ways to hedge against exposure to carbon pricing.” Categorised as Article 9 under the EU’s Sustainable Finance Disclosure Regulation, the fund has been seeded with an initial commitment from Aviva’s investment, wealth and retirement business. “Through CRF, we will be able to work directly with conservation groups, NGOs, specialist land managers and development partners,” said Greta Talbot-Jones, Co-portfolio Manager and Director of Natural Capital at Aviva Investors. “That is a vitally important element of this strategy as it should provide clearer, more direct and less diluted reporting lines from the projects we fund on how investment capital is being deployed, which activities that funding is supporting and where, and the impact it is having in terms of real-world outcomes.” 

UK-based sustainable investment manager EdenTree has launched the EdenTree Global Select Government Bond Fund, a global portfolio of government and government-related ESG-labelled bonds, expanding its fixed-income fund suite. The new vehicle targets at least 80% asset exposure to government and government-related green, social, sustainable and impact (GSS+) bonds – the proceeds of which will finance new or existing projects to support the reduction of carbon emissions caused by human activities, and heighten access to services that “empower communities around the world”. Sovereign ESG-labelled debt issuance has grown at an “unprecedented pace”, according to EdenTree, with government and government-related issuance making up just over half of the outstanding global universe of use-of-proceeds GSS+ debt. “Urgent steps are needed to address global sustainable development funding requirements, and governments have a unique ability to mobilise capital at scale through vast debt issuance programmes, placing them in a prime position to fund projects that tackle these societal challenges,” said David Katimbo-Mugwanya, Head of Fixed Income at EdenTree. “In a market environment that offers considerably higher bond yields compared to the last decade, the risk-return profile of government debt from an asset allocation perspective has markedly improved. This new fund is ideally placed to leverage these market dynamics [for] clients seeking to credibly enhance sustainable fixed-income offerings when allocating to government debt.”