Aviva Investors has been fined €56,500 by Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) for “persistent breaches” of their internal governance framework concerning five sub-funds classified as Article 8 under the EU’s Sustainable Finance Disclosure Regulation (SFDR).
During an inspection that took place between 3 October 2022 and 11 May 2023, the CSSF found certain bonds held by the Aviva Investors Emerging Markets Bond fund did not comply with the investment strategy described in the pre-contractual disclosures in the fund’s prospectus. The fund was designed with an ‘exclusion threshold’ to filter out assets with the least favourable characteristics, but the CSSF identified the presence of several bonds – representing on average 5.5% of the net assets of the sub-fund – issued by five countries whose ESG score was below the exclusion threshold disclosed.
In relation to the other sub-funds, Aviva Investors “indicated – in several versions of the fund’s prospectus issued between November 2021 and February 2023 – that those were ‘primarily targeting’ different Sustainable Development Goals as defined by the United Nations”, noted the CSSF. However, the measures put in place “did not allow it to ensure the SDGs disclosed in the fund’s prospectuses were effectively primarily targeted by these sub-funds”.
These four sub-funds included the Natural Capital Transition Global Equity fund, the Social Transition Global Equity fund, the Climate Transition Global Equity fund and the Climate Transition European Equity fund, the latter of which was closed in 2023.
The CSSF said it took the fact that Aviva had confirmed having implemented corrective measures to remedy the identified breaches into consideration before it decided on the appropriate level of sanction.
In August, Aviva Investors announced the departure of four of its global equity fund managers, including the manager of its Social Transition Global Equity fund, Richard Saldanha, and co-portfolio manager of its Climate Transition Global Equity fund, Andrea Carzana. Saldanha has since returned to Aviva Investors after one month at Royal London Asset Management.
A spokesperson for Aviva Investors commented: “Aviva Investors worked with the CSSF to ensure concerns were swiftly addressed after they were raised. The CSSF has confirmed the remedial actions taken by the management company in updating the prospectus wording and updating its monitoring framework are adequate to address their findings.
“Specifically, in relation to the EM Bond fund, investors have suffered no financial detriment as a result of the fund holding those bonds which the CSSF consider did not comply with the terms of the prospectus.”
Implications for fund managers
Addressing the fine, Integrum ESG noted this is the first example from an EU financial regulator and, as European Article 8 funds were reported as having €7.4trn in assets in June of this year, this sanction “will have potential consequences for many asset managers”.
“There is strong evidence to suggest this is only the beginning,” it continued. “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.”
Integrum ESG further explained this could mean fund managers are at risk of being challenged to defend their classification by the financial regulator in any EU country where the fund is marketed, with some “unable to produce the data needed to defend their classification”. This could lead to reputational damage and fines, which could prove particularly damaging for smaller asset managers.
