The decision whether to market an impact fund as ‘light’ or ‘dark’ green under SFDR is one to which fund managers usually give a great deal of thought. And yet, for Marieke van Kamp, head of private markets at NN Group, it is not the major consideration when choosing funds in which to invest. Rather, taxonomy alignment is the key issue.

NN group is a Dutch Insurance company with €198 billion in assets, per New Private Markets data. The group plans to invest €6 billion in climate solutions by 2030 across real estate, infrastructure, private equity and green bonds and other asset classes, in addition to the €5 billion it had already committed as of the end of 2021.

“We agreed internally that we will not favour Article 9 over Article 8 because the interpretation can be quite different across different asset classes, different asset managers and market supervisors on how you can look at that,” van Kamp told NPM. “We chose EU taxonomy alignment as the base principle due to its more clear definition. Sometimes you can have a fund which is Article 8 that has lots of assets under management which are taxonomy aligned, and an article 9 fund which has less. It’s just a different type of filter.”

The EU taxonomy details the institution’s conception of environmentally sustainable economic activities. Managers that market their funds under Article 8 or 9 are required to disclose the proportion of the fund’s assets under management that align with the taxonomy.

Real estate priorities

Most of NN Group’s private markets allocation is directed towards the Dutch mortgage market. Beside this, the group is most active in real estate and private debt, which both receive allocations of above 5 percent. Private equity and infrastructure receive an allocation “in the order of 1 or 2 percent”, according to van Kamp.

The group’s activity in the real estate space may go some way to explaining its reluctance to prioritise dark green funds. Real estate impact strategies are often incompatible with Article 9, causing many managers to eschew SFDR’s ‘greenest’ fund status.

Said van Kamp: “Article 8 or 9 is important, but it’s not that we favour one above the other, the underlying strategy is key for us. A good example are brown-to-green strategies which are often Article 8, like in real estate. But transitioning brown assets to green is much more impactful overall.”

This is not to say all Article 9 funds are off the table. The company recently committed €300 million to Rivage’s ‘dark green’ climate infrastructure fund, according to the NPM database. But an Article 9 fund with low taxonomy alignment would “not really fit” NN Group’s needs.

Difficulties in debt

The firm has also encountered a lack of credit funds that meet their standards when it comes to impact. Private credit accounts for a smaller slice of global impact investing activity than private equity: 22 percent of impact capital is now directed towards the asset class, according to data from the Global Impact Investing Network, released last week.

“It’s a bit difficult still. In infra debt it’s relatively easy, the partners we work with are quite advanced,” van Kamp said. “In corporate debt it’s a bit harder. It’s first-time funds or it’s managers that are embedding certain KPIs and ratchets, but that we don’t feel are really seeking taxonomy alignment or really seeking impact.”

Funds without a demonstrable track record are unlikely to appeal to the investor. “Normally we don’t,” van Kamp responded when asked if NN Group would invest in a first-time fund. “If we see that the team has a lot of experience at other firms and we feel that they are really fit for what is required… then we can have a discussion, but then still we are a bit hesitant.”

Social developments

Given its taxonomy-orientated approach, it is not surprising that NN Group has found it difficult to develop a social impact strategy. The EU is yet to produce a social taxonomy to match its environmental one, meaning that socially focused funds are flying blind when deciding whether their strategies are deemed sustainable or not.

She said: “We do want to develop a social taxonomy and a social impact strategy, but that is in development. The EU social taxonomy is in the making, but it will take a while. We do already have some strategies that are relevant to that agenda, such as financing hospitals and healthcare facilities, but it’s not yet really programmatic”.