Sustainability & Thematics: Feedback from the US

Research evidence excerpt

Sustainability & Thematics: Feedback from the US

IdeaMof the flexibility within the proposed requirements for Article 9 classification, concerns

remain particularly pronounced around Articles 7 and 8. Our conversations indicate

limited to no appetite to classify under Article 7 given the exclusions related to fossil fuel

expanders. For Article 8, managers are currently running portfolio simulations against the

proposed 70% portfolio alignment threshold, though most discussions suggest there

could be meaningful challenges in maintaining Article 8 classification under the revised

framework.

The Council and Parliament are currently in the process of developing their respective

positions. The Council’s approach appears relatively pragmatic and more reflective of

investor feedback on some of the more contentious elements of the proposal, e.g.

potentially including an exemption from the exclusion criteria for Transition funds linked

to renewable capex investment. However, the Council has not yet commented on the

proposed 70% portfolio alignment requirement for Article 8.

In contrast, the Parliament’s initial position signals a further tightening of the

Commission’s proposal, with several elements becoming more stringent. Examples include

raising the threshold for the taxonomy safe harbour and intensifying requirements for the

Article 8 ESG Basics category by prohibiting investments in securities with ESG ratings in

the bottom 20% of their investment universe.

Some of the key challenges flagged to us include increasing concentration risks within

sustainability funds, a growing bias against companies with weaker ESG scores, limited

ability to finance the real economy transition, and broader fatigue across the industry in

keeping up with the pace of regulatory changes.