At the 6th edition of the conference “Driving Sustainability: ESG Non-Financial Reporting in Romania” focusing on ESG trends in Central and Eastern Europe, Responsible Alpha presented on how the largest publicly-traded companies in the region can expand interest of institutional investors in investing in the region by aligning with EU regulations and creating long-term value through ESG strategies.
Why It Matters
Thematic Bonds: Only one Romanian corporate assessed has issued a thematic bond. Pursuing green bonds, social bonds, sustainability bonds, sustainability linked bonds, and transition bonds can accelerate ESG-driven financing and improve investor confidence.
Publish SFDR ESG Metrics: Publishing Sustainable Finance Disclosure Regulation (SFDR) ESG Metrics is essential for attracting Article 8 investors.
Increase Interest by Article 8 Investors: Publish required SFDR ESG metrics as most Romanian corporates have not obtained market share of Article 8 investors.
Details
Article 8 funds saw substantial growth in the EU Q3 ‘24, €38 billion in net new capital—highest inflows since the end of 2021. Article 6 funds €96 billion net inflows.
Assets in Article 8 and Article 9 funds remain stable at roughly €6 trillion. New Article 8 and Article 9 funds made up 56% of all new EU fund launches. Fund closures were lower among sustainable funds, with 86 Article 8 and 9 funds closing compared to 209 Article 6 fund closures.
Combined assets in Article 8 and Article 9 saw their market share climb to nearly 60% of the EU universe. Article 8 funds maintained their market share at around 55% at the end of 2023. Measured by the number of funds, the Article 8 category grew steadily to 10,964 at the end of March, taking up 44.3% of the market share.
The EU’s Sustainable Finance Disclosure Regulation (SFDR) requires asset managers to classify their funds as either an article 6, 8 or 9 fund depending on their level of sustainability.
Article 6: Funds without a sustainability scope.
Article 8: Funds that promote environmental or social characteristics (light green).
Article 9: Funds that have sustainable investment as their objective (dark green).
Article 8 funds have the following environmental and social characteristics:
Holdings should generally help attain the environmental or social characteristics promoted.
Funds that promote an environmental characteristic must disclose alignment with the EU Taxonomy of Sustainable Activities, including the methodology for calculating any referenced index.
These funds also must indicate if they invest a proportion in environmentally sustainable investments.
All Article 8 and Article 9 funds are required to disclose if they consider Principal Adverse Impact indicators and report under SFDR 14 mandatory indicators.
For corporates to qualify for Article 8, they must disclose the following ESG metrics:
Greenhouse gas emissions.
Carbon footprint.
Greenhouse gas intensity of investee companies.
Exposure to companies active in the fossil fuel sector.
Share of nonrenewable energy consumption production.
Energy consumption intensity per high impact climate sector.
Activities negatively affecting biodiversity-sensitive areas.
Emissions to water ratio.
Hazardous waste ratio.
Violations of the UN Global Compact principles and Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises.
Lack of processes and compliance mechanisms to monitor compliance.
Unadjusted gender pay gap.
Board gender diversity.
Exposure to controversial weapons.
* Only issuer of thematic bonds. Thematic bonds – which include green, social, sustainability, and sustainability-linked bonds – are debt instruments, in which the proceeds raised are used for ESG-related activities and investments. The use of thematic bonds among sovereign issuers is likely to increase in the coming years, as countries aim to accelerate the energy transition, preserve nature, and combat climate change.
Increase Your Investor Base: Action Items
To unlock sustainable investment and align with EU expectations, Romanian corporates can:
Expand Thematic Bond Issuance: Capitalize on the rising demand for ESG-related financial instruments.
Comply with SFDR Requirements: Publish all necessary ESG metrics to appeal to Article 8 and 9 investors.
Leverage EU Taxonomy: Demonstrate alignment with environmental and social objectives to enhance credibility.
Romanian companies looking to tap into sustainable finance markets have several key opportunities. First, expanding their thematic bond offerings beyond the single corporate issue to date, they can meet growing investor demand for sustainable debt instruments. Second, disclosing ESG metrics and performance aligned with SFDR standards will help attract Article 8 and 9 funds, which are seeing record inflows across the EU.
Finally, a clear alignment with the EU Taxonomy will also strengthen their credibility with sustainability-focused investors. As Central and Eastern European markets mature, companies that lead in adopting these sustainability frameworks stand to benefit from increased access to institutional capital seeking both financial returns and positive impact.
Comments