Thirteen Article 9 funds hold fast fashion brands

As the Competition and Markets Authority’s greenwashing investigations into fast fashion houses ASOS and Boohoo continues, Morningstar data revealed that 13 SFDR Article 9 funds remain invested in either or both retailers.

Over the years, both brands have launched lines claiming to be environmentally conscious and made from recycled materials.

ASOS and Boohoo among firms investigated over greenwashing claims

Boohoo has also been the subject of scrutiny by human rights groups and in July 2020 was at the centre of a Labour Behind the Label report detailing labour rights abuses, worker exploitation and dangerous working conditions at its Leicester factories.

The company became the most shorted UK stock as of 26 August, with 8.2% of its stock shorted by ten different funds, according to GraniteShares data.

According to Sustainalytics, the social risk of human rights is the most material risk facing apparel companies today. Additionally, the fashion industry emits more carbon dioxide than aviation and shipping combined and causes 20% of industrial water pollution, using 79 billion cubic metres of water every year, according to the United Nations.

Sustainable objective

Under SFDR, an Article 9 fund must have sustainable investment or a reduction in carbon emissions as its objective. UBS, Swedish bank Handelsbanken, Northern Trust, BlackRock’s iShares, ASN Impact Investors, BNP Paribas, Amundi and Kempen all have Article 9 funds holding either or both ASOS and Boohoo.

Of the funds, seven are actively managed, with six of them run by ASN Impact Investors, formerly part of Dutch bank ASN, while the other is housed by Kempen.

Senior manager for sustainability at ASN II Marietta Smid, who oversees the firm’s sustainable policies, told Investment Week that ASN had opted for engagement within the sector, rather than exclusion.

Smid said: “The environmental impacts of the garment sector is something we are really focusing on. Fast fashion is a big topic for us and we are looking at where we would draw the line. We already check whether companies have policies in place on climate change, but that is probably where we have to raise the bar so-to-speak.

“Fast fashion does not help society. That I completely agree with. We have only ever approved 15 worldwide listed brands and once a company is selected, it does not mean it will remain in our portfolios forever. We follow companies continuously and we carry out an ESG due diligence process every four years.”

More than 1,500 Article 9 funds at risk of losing status

Importantly, ASN II does exclude fossil fuel producers, which Smid said was down to both the sectors’ environmental and human rights record.

“Engagement [with fossil fuel companies] has been around for a long time and it has not resulted in much improvement,” she added.

“We promise our clients that we will aim for this sustainable economy and these kinds of activities [fossil fuels] just do not mix because they are harmful to the environment and to humans… We always say we have to follow every euro we invest in and we have to be able to explain that to investors.”

Smid acknowledged fast fashion as a sector had its issues and noted investors had previously expressed concerns over its holding in H&M, though ultimately it was opting to engage and monitor companies’ progress.

Light green

Of the Article 8 funds within Morningstar’s investment universe that hold robust governance practices that promote, among other characteristics, environmental or social traits, or a combination of the two, 36 remain invested in either or both fashion houses.

J Safra Sarasin, DWS, T. Rowe Price and UBS did not respond to requests to comment on how their relevant Article 8 funds fulfilled the designation through stock selection.

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Fidelity International declined to comment on individual stocks, although when asked how it went about identifying stocks for an actively managed Article 8 sustainable research ETF (with a holding in Boohoo), investment director at the firm Stacie Mitchinson said: “We identify our stocks by Analysing the breadth and depth of Fidelity’s research using quantitative techniques.

“Our coverage of companies are rated by analysts both fundamentally and sustainably and we tilt our portfolios towards issuers we rate favourably for both. The ratings represent a unique source of alpha, although the ETFs are also subject to certain behavioural exclusions, to filter out issuers deemed to be involved in unsustainable business areas, for example tobacco, thermal coal, etc.”


The power to classify funds under SFDR, and indeed to downgrade them, remains with managers rather than the regulator.

In a speech given in May, chair of the European Securities and Markets Authority Verena Ross warned of greenwashing dangers, as disclosures under SFDR were too often being used for marketing purposes.

When asked about the watchdog’s powers to crack down on Article 9 funds invested in companies contributing to climate change, a spokesperson at ESMA told Investment Week: “National competent authorities are responsible for monitoring compliance with the requirements of SFDR.

“Therefore, if a financial product that is disclosing sustainability information under Article 9 SFDR discloses that it makes sustainable investments that do not significantly harm any environmental or social objective, while at the same time investing in investee companies that do significant harm to the climate, this could be a breach of the disclosure requirements since it would mean the product is making misleading disclosures.”

Data providers

When asked about the effectiveness of the regulation in the face of Article 9 funds invested in fast fashion, global head of sustainability at Morningstar, Hortense Bioy, said the matter was not so simple: “Managers can still invest in companies which they think are improving their ESG credentials. It is the asset manager’s job to evaluate that. For example, Article 9 funds can also invest in oil and gas companies that are transitioning, these are companies that are growing revenue from renewables while still operating their legacy fossil fuel business. “

Bioy said it was hard to believe fast fashion companies like ASOS and Boohoo would ever have a net positive impact on society.

“By definition, fast fashion is not sustainable so it is fair to wonder if these funds are holding them simply for financial returns,” she said.

According to Rumi Mahmood, vice-president at MSCI Research, the auditing process for SFDR has not been fully established.

“Regulators of individual European jurisdictions have commenced spot-checks and this is likely to become more widespread over time, possibly involving additional supervisory and national competent authorities,” he said.

“Further technical guidance on SFDR classifications may yet follow to address certain fund types and asset classes outside of scope based on current guidance.”

ASOS and Boohoo declined requests for comment.


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