BlackRock is downgrading its flagship sustainable thematic ETF from Article 9 to Article 8 ahead of major changes to Europe’s sustainable fund regulation in January.
The $6bn iShares Global Clean Energy UCITS ETF (INRG) is one of two thematic strategies set to switch from ‘dark green’ to ‘light green’ – alongside the iShares Smart City Infrastructure UCITS ETF (CITY) – from 1 December.
It comes after ETF Stream revealed last week that the asset management giant would be shifting its Paris-aligned benchmark (PAB) and climate transition benchmark (CTB) ETFs, with over €20bn assets under management (AUM), to Article 8 under the Sustainable Finance Disclosure Regulation (SFDR).
In a shareholder notice, BlackRock said: “The decision to reclassify the fund has been taken in light of the new ‘level 2’ regulatory technical standards under SFDR and the current available regulatory guidance.
“The directors of the company believe that the fund's new classification better aligns the fund with the upcoming regulatory standards and expectations.”
BlackRock added both INRG and CITY will continue to track the performance of their underlying indices, but that they would not adhere to the new SFDR standards “without substantially moving away from its intended risk and return objective”.
Meanwhile, the iShares Refinitiv Inclusion and Diversity UCITS ETF (OPEN) will be downgraded from Article 8 to Article 6.
The decision to include INRG – the poster boy of clean energy ETFs – in the downgrades will likely raise further questions about what will qualify as Article 9 under ‘level 2’ of SFDR.
It was widely anticipated PAB and CTB strategies were unlikely to meet the 100% sustainable investment requirements outlined in the regulatory update, however, it was also understood some thematic ETFs may meet the minimum standards.
Attention will now turn to BlackRock’s rivals. Invesco announced last week it was downgrading its suite of PAB ETFs “pending clarification from the European Commission”.
Other competitors, including the L&G Clean Energy UCITE ETF (RENG), are also classified as Article 9 under SFDR, while the Fidelity Clean Energy UCITS ETF (FRNW) is labelled Article 8.
INRG, Europe’s largest clean energy ETF, shot into the limelight in the first half of 2021 riding the wave of clean energy enthusiasm. However, the growth led to concerns around illiquidity and over-concentration which led to several fundamental changes to its underlying index.