Aviva Investors have been fined by Luxembourg's financial regulator for breaches identified in 5 of their funds categorised as SFDR Article 8.

𝟭. 𝗜𝗻𝘁𝗿𝗼𝗱𝘂𝗰𝘁𝗶𝗼𝗻

The CSSF's investigation took place between October 2022 - May 2023, and took aim at 4 of their current funds and one which had closed in 2023.

The regulator concluded that Aviva did not comply with two of their regulatory requirements and they were fined accordingly.

You can read the full CSSF decision here.

𝟮. 𝗪𝗵𝘆 𝗱𝗼𝗲𝘀 𝘁𝗵𝗶𝘀 𝗺𝗮𝘁𝘁𝗲𝗿?

It was reported that European Article 8 funds have €7.4trn in assets in June of this year - this sanction will therefore have potential consequences for many asset managers.

There are three key reasons we believe fund managers should be concerned:

🇪🇺 Impending European regulatory action on ESG misselling

👎 Reputational damage is hard to recover from

💰 Smaller managers will not have the resources to defend their claims

𝟮(𝟭) 𝗜𝗺𝗽𝗲𝗻𝗱𝗶𝗻𝗴 𝗘𝗨 𝗿𝗲𝗴𝘂𝗹𝗮𝘁𝗼𝗿𝘆 𝗮𝗰𝘁𝗶𝗼𝗻 𝗼𝗻 𝗘𝗦𝗚 𝗺𝗶𝘀𝘀𝗲𝗹𝗹𝗶𝗻𝗴

While we have seen recent fines from the SEC and even the Australian financial regulators on misleading ESG claims, this is the first example of such a fine from an EU financial regulator.

There is strong evidence to suggest this is only the beginning.

The financial regulators in Norway, France and Italy have all confirmed in statements or press comments that there are ongoing investigations relating to SFDR Article classifications.

Bear in mind that EU regulators do not award an Article 8 classification to funds, or ‘sign off’ on a classification, as many think. The fund manager itself decides to classify a fund as such, for the purpose of continuing to promote the fund as ‘sustainable’.

The fund manager is then at risk of being challenged to defend their classification, by the financial regulator in any EU country where the fund is marketed.

Some fund managers, like Aviva, may be found guilty of procedural failures. Many managers however will be unable to produce the data needed to defend their classification.

𝟮(𝟮) 𝗥𝗲𝗽𝘂𝘁𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝗱𝗮𝗺𝗮𝗴𝗲 𝗶𝘀 𝗵𝗮𝗿𝗱 𝘁𝗼 𝗿𝗲𝗰𝗼𝘃𝗲𝗿 𝗳𝗿𝗼𝗺

A penalty for Financial misselling, whether ESG-related or not, has a long-lasting impact on an asset manager’s credibility.

And this fine is certainly embarrassing for Aviva, which has long promoted its strong stance on sustainability.

The Luxembourg regulator concluded that 1 Aviva fund did not follow the sustainable investing strategy it claimed to deploy, and that the ESG characteristics of 4 other Aviva funds were not being adequately monitored.

Not only do we expect announcements from larger EU regulators in 2025, but increased regulatory action is likely to heighten the scrutiny most fund managers are increasingly facing from a client base sceptical of greenwashing.

𝟮(𝟯) 𝗦𝗺𝗮𝗹𝗹𝗲𝗿 𝗺𝗮𝗻𝗮𝗴𝗲𝗿𝘀 𝘄𝗶𝗹𝗹 𝘀𝘁𝗿𝘂𝗴𝗴𝗹𝗲 𝘁𝗼 𝗱𝗲𝗳𝗲𝗻𝗱 𝗰𝗹𝗮𝗶𝗺𝘀

The administrative fine was only €56,500. Some may dismiss this as a trivial sum to a giant like Aviva.

However, it was made clear that the fine was only reduced to this amount due to the asset manager's overall reputation and conduct during the regulator's investigation, and the corrective measures they have implemented since.

As mentioned above, European Article 8 funds have €7.4trn in assets and this number is growing.

Many of these funds are managed by investment firms with nothing like the reputation or resources that Aviva enjoys.

This means that having to address any SFDR Article breaches could prove very damaging, particularly for smaller asset managers.

𝟯. 𝗖𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻

If your fund has been labelled as Article 8 under SFDR, you are at risk of being challenged to defend your classification by the financial regulator in any EU country where the fund is marketed.

If you have concerns about your fund’s SFDR classification or have any other questions on the story above, contact us today via contact@integrumesg.com or fill in this form HERE to book in a call.