Dutch firm’s fifth impact-focused investment strategy launches amid continued demand for Article 9 funds.
ING Asset Management’s new SDG Impact Strategy will provide clients with exposure to companies that contribute specifically to the 17 UN Sustainable Development Goals (SDGs), responding to strong demand for ‘dark green’ investments.
The fund is the Dutch asset manager’s first to be categorised under Article 9 of the EU Sustainable Finance Disclosure Regulation (SFDR), due to the specific sustainability characteristics lent by its SDG focus.
Regulatory uncertainty led to many managers downgrading their Article 9 funds to Article 8 in the second half of last year to avoid accusations of greenwashing, but there are some expectations of a resurgence in ‘dark green’ funds.
In addition to the SDG Impact Strategy, ING offers four Article 8 investment strategies with sustainability characteristics – Current, Income, Index and Sustainable.
Bob Homan, Investment Office Head at ING, told ESG Investor that what differentiates this strategy from the rest is its focus on companies’ impact on the UN SDGs.
According to Homan, ING’s previous four strategies had first focused on financial analysis before taking sustainability factors into account.
With some clients wanting “even more sustainability” in their investments, Homan said it was important to “cover that niche” to meet client appetite.
SDG fund focus
All the issuers selected by ING for the SDG Impact Strategy had to have turnover and profits from products or services that contribute to at least one of the SDGs. “Making the best possible financial return is not the primary objective of this strategy, but rather investing in impactful companies,” said Homan.
According to ING, while other impact products often focus on one or more aspects of sustainability, the SDG Impact Strategy focuses on people, the environment and society at the same time.
Homan said fewer than 300 companies within Morningstar Sustainalytics’ ESG Risk Ratings database of 16,000 companies contribute sufficiently to the SDGs to be considered, with ING selecting 60 to classify the fund as Article 9 under SFDR.
The SDG Impact Strategy invests in a single multi-asset fund, including direct investments in individual shares and bonds, and asset and liability managed investment funds.
Homan expects the SDG Impact Strategy to remain modest in terms of AuM initially, with ING not having set any specific targets. He hopes the fund will reach €50 million (US$53.5 million) within a year, adding that two years from its launch it needs to have reached €100 million in AuM.
ING’s smallest investment strategy has €1 billion in AuM, while its largest manages €8 billion.
Homan said the firm is increasingly focused on developing sustainable products.
“We’re going to find new ways to push sustainability a bit more,” he said.
“This is our most sustainable strategy so far and it will take another couple of years before we introduce a sixth,” Homan said. “We want to keep our products simple and not [end up with] infinite numbers.”
The firm has committed to mobilise €125 billion of sustainable finance per annum by 2025. This includes capturing the volumes of green, social, transition and sustainability bonds and sustainability-linked bonds.
Article 9 rebound?
According to Morningstar data, 307 (40%) of Article 9 funds were downgraded to Article 8 in Q4 2022 due to regulatory changes and “uncertainty about how sustainable investments are defined”.
The funds downgraded in Q4 2022 were worth a combined €171.1 billion in AuM, with a further €99 billion in Article 9 funds being downgraded in January this year.
In a research note published this week, titled ‘Let the Upgrades to Article 9 Begin’, US investment bank Jefferies said demand for Article 9 funds remained “strong and consistent”, seeing aggregate net inflows of 7.13 billion from January to April. It also pointed out that 44 funds had upgraded to Article 9 status from Article 8, which it attributed to a “response to the market opportunity created by an under-supply”.
Article 8 funds “promote environmental or social characteristics”, while Article 9 funds have a “sustainable investment objective” and are subject to more stringent rules.
In April, the European Commission responded to questions raised by the European Supervisory Authorities (ESAs) on SFDR in September last year, which asked for clarification the definition of “sustainable investments”.
Homan welcomed the additional clarity and flexibility provided to asset managers by the EC.
“In my opinion, there is not just one simple approach in investing,” said Homan. “In our fund we are only emphasising SDGs. Maybe other asset managers are focusing on engagement and voting with less exclusions.”