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Approximately one quarter of net assets volume in Austria is already invested sustainably. Climate Stress Test: potential losses of 3 to 9 percent from sustainability risks

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Out of the total of approximately € 218 bn net asset volume managed by Austrian funds, € 53 bn are invested in accordance with sustainability criteria; or 24.3%. 347 out of 1,974 funds in total fall into this category. This is the outcome of analysis conducted by the Austrian Financial Market Authority (FMA), during the course of which the sustainability of Austrian funds managed by investment fund management companies (KAGs) as well as licensed alternative investment fund managers (AIFM) as of the reporting date of 30.06.2021 were surveyed in accordance with the European Union’s (EU) criteria on sustainability-related disclosure obligations[1]. A climate stress test conducted for various scenarios in accordance with rules set by the European Securities and Markets Authority (ESMA) has nevertheless shown that depending on the prevailing assumption that loss of value of around -3% to -9% may be expected for the Austrian funds market in the coming five years from sustainability risks.

“The new EU disclosure obligations about the sustainability of financial products are particularly significant for all market participants, but in particular for inexperienced and retail investors. Only well informed consumers are also able to make a well-founded investment decision in accordance with their return, risk and sustainability preferences,” remarked the FMA’s Executive Directors, Helmut Ettl and Eduard Müller.

The boom in sustainable asset management

Among Austrian sustainable funds, those bearing Austrian Ecolabel for Sustainable Investment Products, Ecolabel 49, have been especially successful. As of 30.09.2021, there were already 103 such funds with a net asset volume of € 23.6 bn investing in accordance with Ecolabel 49, an increase of € 10.1 bn or 74.8% within the last year. In addition there are two real estate funds with a combined volume of € 609 mn that are managed in accordance with Ecolabel 49.

Significant sustainability risks remain

In order to be able to assess how high Austrian funds’ exposures to sustainability risks still are, the FMA has subjected them to a climate stress test in accordance with the criteria and the layout determined by the European Securities and Markets Authority (ESMA).[2] In the stress test the transition risks are measures and analysed, in other words the risks arising from the transition towards a climate-neutral and resilient economy and society, and which may lead to a devaluation of assets. The ESMA stress scenarios are split into three relevant areas:

political, where the introduction of a CO2 tax or changes in construction laws and zoning may be triggers;

technology, where innovations leading to a reduction in CO2 or to renewable energy sources may cause depreciations of existing technologies (“stranded assets”);

consumer preferences and confidence, where the conduct of consumers or investors may change towards CO2 intensive products and services or their providers.

The stress tests conducted for the different stress scenarios have shown that the materialisation of transitional risk may already lead to substantial losses in value within five years, of between -3% and -9% when aggregated for the entire market. These are expected in the case of a political shock to be by -4.9%, in a technological shock by -3.1%, in the case of a shock relating to consumer or investor preferences by -7.2%, or in the case of a simultaneous political and technological shock even by -9%. If this were applied to the current net asset value of funds, the losses would be between € 6.6 bn to € 19.7 bn . “Green funds” (with a lower exposure to CO2 intensive investments) are better protected than “brown funds” (with a higher exposure to CO2-intensive investments).

The analysis of the Austrian fund market displays similar risk characteristics to the European average.

Journalists may address further enquiries to:

Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-6006
+43/(0)676/88 249 516

[1] Disclosure Regulation or Sustainable Finance Disclosure Regulation (SDFR): Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector, OJ L 317, 09.12.2019, p. 1, in the version of Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088, OJ L 198, 22.06.2020

[2] ESMA Report on Trends, Risks and Vulnerabilities, No 1 2021, pp. 73-86. See https://www.esma.europa.eu/sites/default/files/library/esma50-165-1524_trv_1_2021.pdf (Link to external page. Opens in new window.)

This news item was originally published by the Financial Market Authority (FMA AT). For more information, please see the Source Link.

Regulator Information

Regulator Name: Financial Market Authority
Abbreviation: FMA
Jurisdiction: Austria

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