If you want to invest in a fund branded as sustainable under new European Union rules, you're spoilt for choice. But you may end up owning shares in oil companies, mining conglomerates or tobacco firms.
L&G said the fund was considered Article 8 because it promotes sustainability characteristics by applying LGIM's Future World Protection List and this was a "binding element" of the investment process.
A European Commission spokesperson said its rules were designed to ensure funds were transparent about the sustainability of products so investors could make choices, and was not a labelling scheme.An analysis of the funds of the 14 firms that replied shows some Article 8 products have limited claims to sustainability, such as those tracking conventional stock and bond indexes, investing in fossil fuels or buying debt from countries with weak ESG standards such as Saudi Arabia and Nigeria.
Hortense Bioy, director of sustainability research at Morningstar, said Article 8 funds ranged from climate-themed green to "very, very light green", excluding just a few firms. Many Article 8 funds have clear sustainability criteria, such as strategies that invest in businesses with the lowest carbon impact in their sectors, or Allianz's water-focused fund.
Morningstar analysis shows one in four Article 8 funds has exposure to companies involved in controversial weapons and one in five to tobacco. A third of Article 8 and 9 funds have more than a 5% exposure to fossil fuel firms."There is a clear commercial opportunity," said Eric Borremans, head of ESG at Switzerland's Pictet Asset Management, which classes 57% of its assets as Article 8 or 9.
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