BlackRock Inc. and other European exchange-traded fund issuers have decided a batch of their funds no longer meet the criteria for a top ESG rating and are reclassifying them to a less-strict category.
Invesco is also among firms reclassifying some ETFs in Europe after updates to Article 9 of the European Union’s Sustainable Finance Disclosure Regulation. The category is the EU’s strictest environmental, social and governance classification.
Goldman Sachs Group Inc. and Pacific Investment Management Co.—known as Pimco—are other U.S. firms downgrading their funds in Europe.
The changes in Europe come as demand for socially responsible, sustainable investing soars. Growth in the sector is expected to outpace the asset and wealth management market as a whole, with ESG assets under management in the U.S. likely to double to $10.5 trillion by 2026, according to a report published earlier this year by PwC.
U.S. regulators are also taking a harder look at ESG labels on investments. The Securities and Exchange Commission is formulating guidelines to make sure a fund’s name and investment strategies align in an effort to curb “greenwashing”—exaggerated or false claims about a company’s ESG practices.
For BlackRock, the world’s biggest ETF issuer, and the parent company behind iShares, this means it is downgrading 17 ETFs—with $26 billion in AUM.
BlackRock is reclassifying its flagship sustainable ETF in the EU, the iShares Global Clean Energy UCITS ETF (INRG), along with the iShares Smart City Infrastructure UCITS ETF (CITY). The downgrade to Article 8 will be reflected in each fund’s prospectus next month.
Despite reclassifications, the ETFs will continue to track their respective benchmarks and maintain their investment objectives and intended outcomes.
“The decision to reclassify these funds has been taken in light of the new Level 2 Regulatory Technical Standards under SFDR and current available guidance,” Anthony Arthur, head of corporate communications for iShares EMEA, wrote in an email to ETF.com. He said the asset manager strongly supports the SFDR.
Article 9, or “Dark Green Funds,” according to EU guidelines, “may invest in a wide range of underlying assets, provided these underlying assets qualify as sustainable investments.”
Contact Zoya Mirza at [email protected]