In 2016, 175 countries signed the Paris Climate Agreement. An important objective of the agreement is to ensure that the global temperature does not rise more than 1.5 degrees. Since then, many countries and parties have made efforts to contribute. The Climate Agreement is also very much alive among European financial service providers. ‘Sustainable investing’ has therefore taken on a different character in recent years.
Excluding controversial investments
Long ago, pension funds, asset managers and investment product providers began to exclude controversial themes. Companies involved in the production of nuclear weapons, cluster munitions, landmines and tobacco products and thermal coal are rarely found in their investment policy.
SFDR classification
Since the Paris Climate Agreement, more stringent criteria have been implemented. In 2021, the Sustainable Finance Disclosure Regulation (SFDR) came into force and from January 2023 this legislation is mandatory in Europe. The most important thing to know is that for mutual funds and ETFs, the SFDR distinguishes between three categories:
- Article 6: Financial products without sustainability criteria
- Article 8: Financial products that have a preference for sustainable investments (light green)
- Article 9: Financial products that have sustainable investing as their objective (dark green)
Each provider is obliged to indicate whether a mutual fund or ETF fits article 6, 8 or 9. You can find this classification in the documentation of the fund or ETF.
Constantly on the move
Sustainable investing is a dynamic field of activity, as new scientific insights are constantly being published and new political decisions are being taken. An earlier classification can therefore change and new investment products regularly enter the market, which meet the most far-reaching criteria known at that time.
As an example, a fund or ETF with the name ‘Climate Transition’ aims for 30% less CO2 emissions compared to a comparable fund or ETF without sustainability criteria. A product with ‘Paris Aligned’ is stricter and even aims for 50% less CO2 emissions. In the latter category, no investments are made in large oil companies, which resulted in a substantial difference in returns in 2022.
MeDirect offers ETFs and investment funds in all categories: Articles 6, 8 and 9.
Disclaimer
The information given in this article is for general information purposes only and is neither intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information given is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.
The financial instruments discussed may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.
If you invest in any product, you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from any investment may go down as well as up. Products may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund and ETFs should always be based upon the details contained in the Prospectus and Key Investor Information Document (KID), which may be obtained from MeDirect Bank (Malta) plc.
MeDirect Bank (Malta) plc, company registration number C34125, is licensed to undertake the business of banking in terms of the Banking Act (Cap. 371) and investment services under the Investment Service Act (Cap. 370).