Invesco is the latest heavyweight European issuer to downgrade its entire Article 9 Paris-aligned benchmark (PAB) ETF range after ETF Stream revealed BlackRock and UBS Asset Management are lining up a raft of downgrades for their strategies.
In a shareholder notice, Invesco said it would be downgrading its five-strong PAB range from Article 9 to Article 8 under the Sustainable Finance Disclosure Regulation (SFDR) ahead of the ‘level 2’ updates on 1 January.
The asset manager said it made the move “pending clarification from the European Commission” on whether PAB funds would qualify as Article 9 under the new requirements.
It is widely understood that PAB and climate transition benchmark (CTB) strategies are unlikely to meet the 100% sustainable investment requirements needed to achieve Article 9 under the next phase of SFDR.
Currently, less than 5% of Article 9 funds target sustainable investment exposure between 90-100%, according to data from Morningstar.
“The directors have determined that it is in the best interests of investors to re-categorise the funds from Article 9 to Article 8 under SFDR,” Invesco told shareholders, adding the downgrades will take effect from 30 November.
The ETFs subject to downgrades:
Invesco MSCI Emerging Markets ESG Climate Paris Aligned UCITS ETF (ESEM)
Invesco MSCI Europe ESG Climate Paris Aligned UCITS ETF (PAUE)
Invesco MSCI Japan ESG Climate Paris Aligned UCITS ETF (PAJP)
Invesco MSCI World ESG Climate Paris Aligned UCITS ETF (PAWD)
It follows the news that BlackRock – which has the largest PAB and CTB ETF range at over €20bn – and UBS AM were also downgrading their ranges, while Amundi is consulting “key stakeholders” on the matter.
Hundreds of downgrades are expected over the coming months, likely to be spurred by major market players’ desire not to be forced to downgrade their ETFs by the regulator next year.
Article 9 ETFs have been investors’ flavour of choice over 2022, recording significant inflows compared to ‘light green’ Article 8 strategies with most money having gone into PAB and CTB ETFs.
Deka Investment was one of the first asset managers to downgrade its CTB ETFs, reducing seven ETFs from Article 9 to 8 in Q3, including the €958m Deka MSCI USA Climate Change ESG UCITS ETF (D6RQ).
Other asset managers have chosen to label their PAB and CTB ranges Article 8 from the outset, including Street Global Advisors and Goldman Sachs Asset Management.
Last month, DWS switched the underlying indices on two corporate bond ESG ETFs to ones incorporating PAB criteria, however, it did not disclose whether it would be upgraded as a result.