Sweden’s Article 8 dominance: miracle or mirage? & More News Here – Upjobsnews

Joakim Ahlinder, head of investment strategy and analysis at the Swedish investment consultancy Coin, was recently asked by a client to find a Swedish index fund without any ESG screening or exclusions. He struggled. In the end, he could only find one. 

This is a telling example of the Swedish fund market, where a whopping 92% of Swedish Ucits and alternative investment funds were classified as Article 8 strategies as of the end of 2021, according to the European Fund and Asset Management Association.

But according to Ahlinder, parts of the Swedish fund industry believe that the threshold for an Article 8 label is too low.

‘A lot of people [in Sweden] think it’s too easy to be classified as Article 8,’ he told Citywire Selector.

‘You could question how sustainable the funds really are. The fact that so many funds are Article 8 is quite remarkable, and I’m guessing many of them will have to reverse their SFDR classification,’ he added

Living up to the label

Sweden’s Article 8 dominance is in stark contrast to the European average of 22%.

In fact, no other country in Europe is even close to having the same market share of Article 8 funds. In second place, and 42 percentage points further down the line, is Belgium. It has 50% Article 8 funds in its market. Norway, which ranks high on the sustainability charts in all other regards, has 41%.

The contrast between Sweden and other European countries has been identified by Marc-André Bechet, deputy director general of the Association of the Luxembourg Fund Industry, as an indication of a fragmented implementation of Sustainable Finance Disclosure Regulation (SFDR).

During a CEO panel at the European Asset Management Conference in March, Bechet attributed Sweden’s progress not as the result of its sustainability efforts, but to differences in interpretation of the SFDR.

But this theory is something that Johanna Fager Wettergren, head of sustainable finance at the Swedish Financial Supervisory Authority, doesn’t agree with.

‘I haven’t noticed any substantial difference in interpretation. But I have gotten the impression that there’s a shared ambition [in the EU] to interpret it in the same way,’ she told Citywire Selector.

What’s important to note, Fager Wettergren added, is that there is currently no threshold or methodical requirements for Article 8 funds. 

‘We don’t have the technical standards that define what an Article 8 or 9 fund is, and there’s a lot that the industry is still waiting for. Article 8 funds can look very different from one another,’ she said.

Regulatory enforcement

The Swedish Financial Supervisory Authority has played an active role in the industry’s widespread adoption of the SFDR label.

In October last year, it identified 18 funds that were marketed as sustainable without having an SFDR classification, and put pressure on the funds to adopt a label. To Fager Wettergren, it is a matter of making sure that the marketing of sustainable funds lives up to the SFDR label.

‘A product is not allowed to be marketed as sustainable when it’s not classified as such. This is about giving better information to the customers, and the SFDR regulation is there to deter misleading marketing,’ she said.

Due to the increased demand for ESG products, the Swedish Financial Authority has identified greenwashing as one of the largest risks in the financial sector. This year, the authority is taking a closer look at key investor information documents of Article 9 funds to assess if the strategies fulfil the requirements. 

But Fager Wettergren does not believe the greenwashing risk is greater than in any other European country.

‘We don’t have any indication that there’s more greenwashing in Sweden than in other countries. Given that you market it in the right way, I wouldn’t say that Sweden stands out.’

Survival mechanism

Instead, Fager Wettergren pointed to the Swedish fund industry’s early adoption of sustainability policies as an explanation for its fast embrace of the Article 8 label. 

National legislation emerged in 2018, and meant the fund industry had implemented sustainability disclosures ahead of SFDR. Similarly, Coin’s Ahlinder noted that the Swedish Church, which started investing sustainably at the turn of the century and excluded fossil fuels from its portfolios in 2008, inspired several institutions to exclude controversial sectors early on. 

‘A majority of the firms had a sustainability profile, or at least some type of screening, sustainability guidelines and exclusion policies even before SFDR came into effect. That made it quite easy to immediately adopt the Article 8 label,’ Ahlinder (pictured below) said.

The emphasis on sustainability is also reflected in the population as over a third of the Swedish savers have opted for a sustainable fund, according to a 2020 poll from the industry association Fondbolagens förening.

‘As a fund firm in Sweden, you won’t survive unless you have a sustainability approach,’ said Per Haldén, co-chief investment officer at the Swedish boutique Navigera. ‘Maybe that’s why it’s important for Swedish firms to classify their funds as at least Article 8 at an early stage, whereas it might not be as important on the continent.

He believes that the Article 8 gap could stem from caution on the continent, rather than cockiness in Sweden.

‘Maybe they are a bit more hesitant to precede the upcoming SFDR-clarification on the continent than we are in Sweden. Many consider it risky to classify funds too high before we have clear guidelines on what makes a fund Article 8 or 9, since you might have to downgrade it at a later stage,’ Haldén said.

 

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