Why Europe needs to define impact investing to change the world (and why the revision of SFDR is more than a technical debate). An opinion piece by 32 European impact investors.

Investors are at the forefront of the fight against climate change and for a fairer society, and private investments need to be massively reoriented to finance the twin environmental and social transitions. To this end, the European Union adopted in 2018 the Sustainable Finance Disclosures Regulation (SFDR), which introduced the now famous distinction between article 6, article 8 and article 9 funds. These articles cover financial products that aim, with various ambitions, to finance more “sustainable investments”. But what does it really mean?

The world is facing unprecedented environmental challenges and social inequalities, and entrepreneurs are key actors to innovate and develop effective solutions to tackle these challenges. As investors, our mission is to support these solutions and to align responsibility and economic performance.

It is absolutely necessary that all companies engage in a positive trajectory on environmental, social and governance (ESG) practices, and that they limit their negative externalities on society and the planet. This transition should be actively supported, and funded. However, if we want to achieve systemic change, this is not enough. The question should no longer be “how” but “what”.

Capital should be massively reoriented towards companies that put at the heart of their business models the resolution of environmental and/or social challenges. Companies whose very purpose is to have a positive impact. Sustainability can no longer be a “nice to have”, and we believe that impact should be the new paradigm.

Many impact investors across Europe are already demonstrating the relevance of this new model, but the regulatory framework lacks clarity. Today, institutional investors do not know if they invest in impact positive assets when choosing article 8 or article 9 funds as part of their portfolios. Article 8 and 9 funds can cover very different financial products, even if they all allegedly have a sustainability focus. These articles are used as labels by the markets, and their vagueness tend to accentuate risks of greenwashing and impact-washing. Especially, article 9 products are often mistaken for impact funds. The definition of article 9 funds, which have “sustainable investment as their objective”, is too broad and can cover sustainability claims going well beyond measurable and impactful solutions and innovations. We believe that a difference should be made among article 9 funds between solutions and transition, while equivalent of article 8 (ESG +) and article 6 (exclusions) funds remains.

In September, the European Commission via the voice of Commissioner Mairead McGuinness launched a wide consultation on the assessment of SFDR. In this consultation, the Commission plans to develop a more precise product categorisation system at EU level either by developing the distinction between article 8 and article 9, or by creating a 4-category system focusing on cumulative investment strategies. In this latter option, the first category would target “products investing in assets that specifically strive to offer targeted, measurable solutions to sustainability related problems that affect people and/or the planet”.  

Several ecosystem initiatives have defined impact investment as investments made with the intention to generate positive, measurable social or environmental impact alongside a financial return at all investment stages. This proposed new category entails key parts of this definition. This is why, as impact investors, we strongly support the proposition of the European Commission services to introduce a new fourfold categorisation in SFDR.

A well-defined regulatory framework and precise definitions are necessary for the EU capital market to be both more efficient and transparent. Comparability through SFDR would allow investors to better acknowledge the genuine influence of their decisions on achieving sustainable development objectives.

Impact investing should be the cornerstone of sustainable finance, and we call on EU authorities to make it happen at a large scale!

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Signatories

RING CAPITAL, France

ALTER EQUITY, France

ANANDA, Germany

ASTERION VENTURES, France

BONVENTURE, Germany

CITIZEN CAPITAL, France

CLIMENTUM CAPITAL, Denmark

CONTRARIAN VENTURES, Lithuania

CREAS, Spain

EDUCAPITAL, France

EXTANTIA, Germany

FEELSGOOD CAPITAL PARTNERS, Croatia

FIVE SEASONS VENTURES, France

IMPACT EXPANSION, Belgium / France

IMPACT CAPITAL, Belgium

INCLIMO CLIMATE TECH FUND, Spain

INVESTIR&+, France

KOIS INVEST, Belgium

OLTRE IMPACT, Italy

PHITRUST, France

PLANETARY IMPACT VENTURES, Denmark

RAISE IMPACT, France

SATGANA, Luxembourg

SET VENTURES, Netherlands

SHIFT INVEST, Netherlands

SIMPACT VENTURES, Poland

SUMMA EQUITY, Sweden

TILIA IMPACT VENTURES, Czech Republic

TRILL IMPACT ADVISORY, Sweden

UNCONVENTIONAL VENTURES, Denmark / Sweden

VNT MANAGEMENT, Finland

WORLD FUND, Netherlands