How do investors and mutual fund managers behave an in SFDR-regulated world?
- Date
- 20-12-2024
- Publication
- SSRN and CEPR working paper
- Expertise
- Sustainable & Impact Investing
A lot has been said already about the Sustainable Finance Disclosure Regulation (SFDR) that has been announced in November 2019 and which came into force in 2021. But does SFDR achieve its intended goals to reduce information asymmetry between fiduciaries and investor clientele, to mobilize capital toward sustainable investments?
In a new working paper Sustainable Finance Disclosure Regulation: Voluntary Signaling or Mandatory Disclosure?, Lara Spaans (Utrecht University), Jeroen Derwall (Utrecht University, Maastricht University, ECCE), Joop Huij (Erasmus University and Robeco), and Kees Koedijk (Utrecht University, ECCE affiliate) aim to provide some answers to this question.
The paper studies over the period 2017-2022:
- whether flows to SFDR-regulated mutual funds are affected by the SFDR labels that these funds had following the announcement of the regulation. The study finds that after the announcement of SFDR, funds labeled as article 8 or 9, on average, experienced a 0.1 percentage point higher monthly flow. Hence, the voluntary options to choose a specific article had modest effects on mutual fund flows after the announcement of the regulation.
- whether mutual fund managers' equity portfolio exhibit better sustainability profiles following the announcement of SFDR. The authors find that article 8/9 funds (especially retail funds) have portfolios with lower carbon intensity and higher overall ESG scores (measured by Morningstar Globe rating) after the announcement of SFDR, relative to Article-6 funds. These result suggest that funds have choses article 8/9 classifications initially to signal stronger commitment to sustainable investing.
- whether EU-regulated equity mutual funds as a whole exhibit stronger tilts to sustainable equity investments. The paper finds that EU funds hold portfolio on average exhibit lower carbon intensity ratios and higher ESG scores following SFDR relative to their U.S. counterparts.
The full paper is available on SSRN.
