Head of ESG investments, Saxo Bank.
To make it easier for investors to identify and compare sustainable products, tackle greenwashing and ultimately direct capital towards sustainable investments, the European Union enacted the Sustainable Finance Disclosure Regulation (SFDR).
SFDR came into effect in March 2021 and applies to mutual funds and ETFs, alternative investment funds, managed portfolios and financial advice. The regulation aims to provide more transparency and more information to investors, allowing them to better assess the veracity of fund managers’ sustainability claims.
In short, SFDR should help investors make better-informed decisions.
SFDR requires EU-based asset managers, as well as non-EU-based asset managers that market funds in the EU, to classify their funds under one of three categories: Article 9 (dark green), Article 8 (light green) or Article 6 (no green).
ESG risk and other important considerations
Despite its growing popularity, sustainable investing (aka ESG investing) still faces challenges, in particular when it comes to disclosure. Because many countries do not require companies to disclose ESG data, many funds might not have the needed company information to report. Thus, what risks happening, at least at the beginning, is that funds’ disclosure will be made on a best-effort basis and thus may be patchy and varied.
In addition, as the classification of funds is done by the asset managers themselves, there is a risk that some managers misclassify funds and mislead investors, especially at the start of the implementation of the new rules.
When it comes to ESG performance, according to some studies (SRI & Performance study by LFDE, Foundations of ESG Investing by Giese, Lee, Melas, Nagy and Nishikawa), ESG strategies have tended to outperform non-ESG strategies in recent years. It is, however, important to note that, as ESG is a relatively new concept with little historical performance data, making inferences about ESG outperformance or the source of that performance is not recommended.
The growing demand and interest for ESG investing has led to staggering inflows into ESG strategies which, in turn, have contributed to inflated returns for a number of ESG-friendly stocks. There is, therefore, a possibility that if demand for ESG investing goes down, performance might be negatively affected.
How to find ESG investing ideas
You can browse the Article 9 and Article 8 themes that provide lists of dark green and light green funds according to EU SFDR.
Before making any investments, remember to review the product’s information available on the platform and make sure to consider your investment objectives and risk tolerance, as well as your time horizon.
AI: The good, the bad, and the bubble
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The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
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As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
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Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
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The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
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Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
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The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
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While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
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As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
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