The DWS and BNP cuts are the latest in a string of ESG fund downgrades that have ensnared investing giants including BlackRock and Pacific Investment Management Co. Amundi revealed last week it will reclassify almost all its $46 billion in so-called Article 9 funds, as the EU's highest ESG designation is known. In all cases, the decisions were triggered by fresh guidance from the EU Commission on how to interpret the bloc's regulations.
The development has alarmed onlookers, with the head of Europe's main retail investor organization now planning to meet with regulators and legislators to convey concerns that members are being exposed to greenwashing.
"We need to have much clearer guidance from the authorities to make sure we aren't misled, and we aren't being sold greenwashed investment products," Guillaume Prache, managing director of Better Finance, said in an interview.
The group, which represents roughly 4 million financial services users across 25 countries, has scheduled meetings with the European Commission and the European Securities and Markets Authority, he said.
"Asset managers will have to explain to their clients that they're operating in an uncertain and rapidly evolving regulatory environment," said Hortense Bioy, Morningstar's global director of sustainability research. "Let's be clear, the EU has set a very ambitious, but also extremely complex, disclosure regime."
Morningstar has estimated that hundreds of funds may need to be downgraded before the dust settles. That's as EU guidance that Article 9 funds must hold 100% sustainable investments, save for hedging and liquidity requirements, wrong-foots much of the asset management industry.
"The situation is a bit chaotic at the moment," Ms. Bioy said. The market researcher estimates that less than 5% of Article 9 funds currently live up to the EU's 100% sustainability requirement.
Yet some asset managers are holding off with reclassifications, often on the advice of lawyers, in the hope that further guidance from EU authorities will allow them to keep current designations. That's as the Commission looks into a request from Europe's markets watchdog, ESMA, to clarify what it means by a "sustainable investment." The Commission has said it's aware of the issue and is working on the case.