Invesco’s evolving fund range for sustainable investing – Article 8 and 9 funds

Article 8 funds are defined by the SFDR as “a fund which promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices”.

Managers of products must have clear information on how the environmental and social characteristics are met. If an index has been designated reference benchmark, there needs to be information on how the index is consistent with those characteristics. There also needs to be information as to where the methodology used for the calculation of the reference index can be found.

Exclusion strategies can also be used for Article 8 funds. Our exclusions framework for some of our Article 8 funds are:

UN Global Compact

• Non-compliant

International sanctions

• Sanctioned investments are prohibited

Controversial weapons

• 0%, including companies involved in the manufacture of nuclear warheads or whole nuclear missiles outside of the Non-Proliferation Treaty, an international agreement focused on preventing the spread of nuclear weapons, promoting disarmament and encouraging the peaceful uses of nuclear energy.  

Coal

• Thermal coal extraction: >=5% of revenue
• Thermal coal power generation: >=10% of revenue

Unconventional oil & gas

• >= 5% of revenue on each of the following:
  o Artic oil & gas exploration;
  o Oil sands extraction;
  o Shale energy extraction.

Tobacco

• Tobacco Products production: >=5% of revenue
• Tobacco-related products and services: >=5% of revenue

Others

• Recreational cannabis: >=5% of revenue

*Additional exclusions may also apply to some of our other Article 8 and Article 9 fund range.

Article 9 funds are defined as “products that have sustainable investment as their objective, and which invest in economic activities that contribute to an environmental objective, as evidenced by the fact that the investee companies follow good governance practices”.

Managers of products are required to provide clear and accurate information to investors about their sustainable investment objective. If a fund has an index as a reference benchmark, there must be information on how it’s aligned with the sustainable investment objective and why and how this index differs from a broad market index. If there’s no index there needs to be an explanation on how the sustainable investment objective are attained.

The investee companies in these activities must follow good governance practices, such as sound environmental management, ethical business conduct and responsible corporate governance. 

The SFDR is part of the broader European Union Sustainable finance Action Plan, which aims to mobilise capital towards sustainable investments and ensure that financial institutions and investors consider sustainability factors in their decision-making processes.

The rules impose mandatory ESG disclosures for financial market participants on how they integrate ESG into their products. It improves transparency of sustainability related products and creates a level playing field for investors to compare products and understand the impact of their investment decisions. 

Sustainable finance refers to financial activities and practices that integrate ESG factors into investment decisions, lending practices and other financial services. It seeks to align financial activities with sustainability objectives and promote the long-term well-being of both the economy and the environment.

The objective of sustainable finance is to promote a shift towards a more sustainable and resilient global economy. It encourages financial institutions, investors and businesses to consider not only financial returns but also the broader environmental and social impacts of their activities. By integrating sustainability considerations into financial decision-making, sustainable finance aims to drive positive change and contribute to a more sustainable future.  

Sustainable investing refers to an investment approach that considers ESG factors in addition to financial returns. Sustainable investing seeks to generate positive social or environmental impact alongside financial performance.

Sustainable investors evaluate companies and investment opportunities based on their performance and practices related to environmental sustainability, social responsibility, and corporate governance. Factors they consider include carbon emissions, labour practices, board diversity, community engagement and ethical conduct.