Creating a framework that helps sustainable products flourish

Sustainable funds can no longer be seen as a niche area. It is expected that ESG/ sustainable funds will represent an even larger share of the overall fund market in the future. The sustainability trend has definitely taken off and will there to stay.  

ALFI is thoroughly convinced of the key role that asset managers can play in fostering sustainable finance and the great opportunities that it represents for asset managers and investors.

Ever since ALFI organised its first microfinance conference more than ten years ago, it has considered responsible investing as the “third pillar” of the Luxembourg investment fund industry, aligning its importance with that of the other two investment fund pillars – UCITS and AIFs.

ALFI is one of the founding members of LuxFLAG, a finance labelling agency. LuxFLAG aims to promote the raising of capital for sustainable investments by awarding a recognisable label (currently six different labels) to eligible investment vehicles.

Sustainable finance is one of the key priorities of the association as outlined in the ALFI Ambition 2025.

Europe remains the key driver behind sustainable finance

Europe remains the key driver behind sustainable finance, holding 83% of global sustainable funds’ net assets, according to the second annual European Sustainable Investment Funds Study by Morningstar and Zeb, powered by ALFI. The study found that the net assets in sustainable fund products based on Morningstar’s strict definition of sustainability have reached almost EUR 2 trillion at the end of 2021, up 71% from 2020.

SFDR and Taxonomy Regulation

By 10 March 2021, investment funds and asset managers had to comply with the main provisions of the SFDR[1]. The baseline requirement is that all investment funds shall describe in their prospectuses how sustainability risks are integrated into their investment decisions.

Asset managers who wish to offer products in which sustainability becomes the core focus have two options:

  • Classification under the article 8: investment funds which promote environmental and/or social characteristics;
  • Classification under the article 9: investment funds with a focus on sustainability.

ALFI and its members involved in 11 working groups follow closely regulatory developments and provide comments on numerous consultations, produce technical guidelines and update the community on the latest news through expert briefings.

Data

The definition of ESG and sustainable data, templates, collection, aggregation and dissemination of data are new challenges for the industry as well as for investee companies.

The European Commission is conscious of the need to improve access to financial and non-financial information from companies. It suggests building a European Single Access Point (ESAP). The overall objective of the ESAP is to facilitate the flow and use of information, to make it machine-readable, to reduce search and processing costs and to foster interoperability. The ESAP also has the potential to support the EU climate and environmental objectives and the sustainable finance agenda by enabling better access to ESG information.

ALFI is supportive of different industry bodies such as FinDatEx, a European initiative to create European ESG related templates and an ESG Data Definition Inventory (EDDI) aiming to capture transaction-related ESG data requested under relevant existing and upcoming EU regulatory requirements.

[1] Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‚Äźrelated disclosures in the financial services sector.

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