Analysis shows 40% growth in sustainability funds
Analysis by the Maples Group has examined the effect of the recent Sustainable Finance Disclosure Regulation (SFDR) on product design, asset allocation and fund distribution.
The report finds that:
- 23% of Irish-domiciled funds are sustainability-focused funds, or categorised as either SFDR article 8 or SFDR article 9 funds,
- Irish-domiciled sustainability-focused funds have grown by more than 40% in the last two years,
- Approximately 90% of all Irish article 8 and article 9 funds are structured as Undertakings for Collective Investment in Transferable Securities (UCITS),
- Approximately 3% of Irish-domiciled funds have opted for SFDR article 9 categorisation,
- Only 15% of article 9 funds commit to holding taxonomy-aligned investments,
- Only 6% of Irish article 8 funds would be eligible to use Environmental, Social, and Corporate Governance (ESG) or sustainability-related terms in their naming conventions if proposed European Securities Markets Authority (ESMA) rules were adopted,
- Third-party Alternative Investment Fund Managers (AIFMs) and UCITS management companies manage 35% of all Irish-domiciled funds, who in aggregate manage approximately 25% of all Irish-domiciled article 8 and article 9 funds,
- Third-party AIFMs and UCITS management companies are placing reliance on delegate investment managers for SFDR compliance, with potentially significant regulatory gaps in that model.
Location rules
An industry focus on SFDR website disclosure content and location rules is required, the Maples Group's analysis finds.
It examined over 6,400 Irish-domiciled funds, as well as their asset manager.
Irish sustainability-focused funds are growing at a rate consistent with other European jurisdictions, where approximately 44% of all new fund launches in Q4 2022 were categorised as article 8 funds.
SFDR website disclosures of the top 30 asset managers in Ireland show the vast majority were in scope.
However, only half of the asset managers sampled complied with the SFDR website location rules.
Governance
The analysis makes a series of recommendations for action that asset managers can take to improve their sustainability governance and avoid regulatory scrutiny.
Commenting, Ian Conlon (funds and investment management partner) said: "While the 40% growth in sustainability-focused funds is positive in Ireland, we anticipate that this figure will grow exponentially in the coming years, with investors demanding a move towards more ethical and responsible investment."
In Ireland, the Maples Group advised on 1,470 funds in 2022.
Managing partner Peter Stapleton commented that the analysis should be of significant value to international clients, industry participants and advisers in sustainable finance.