Sustainable closed-end investment funds face uncertainty on the path to financial sustainability.

The situation of sustainable alternative investment funds (closed-end AIFs) remains uncertain in the context of the search for a greener future promoted by the European Union. Despite the efforts by European institutions to make the continent climate-neutral by 2050, the path to financial sustainability faces significant obstacles. The European Green Deal and the Action Plan for a greener and cleaner economy, while ambitious, require an effective regulatory framework that supports market realities. Closed-end AIFs have established themselves as a fundamental pillar for channeling investments into sustainable activities, thanks to their ability to mobilize large volumes of capital and their long-term focus. However, their growth has been complicated by legislative pressure, resulting in a classification of funds into different categories under the Sustainable Finance Disclosure Regulation (SFDR). This classification, while necessary, has revealed a lack of real commitment in terms of positive impact on sustainable development. Funds are categorized into three groups: Article 9, which pursue sustainable investments; Article 8, which promote certain social or environmental characteristics; and Article 6, which do not have any of these qualifications. However, despite the obligation to integrate sustainability risks into their investment decisions, there is no requirement that mandates them to generate a concrete positive impact. This lack of effective requirement is at the root of current concerns about transparency and accountability in the management of these funds. European institutions have recognized the need to review and adjust existing regulations to establish minimum impact standards that would allow a fund to qualify as Article 9. This change is crucial, as after a surge in sustainable funds during 2021 and 2022, the year 2023 has shown a downward trend in the classification of many of these investment vehicles, with a significant number of them being reclassified from Article 9 to 8 or even to 6. This highlights the difficulties faced by management companies in meeting reporting requirements. The situation worsens in 2024, with a decrease in both the number of sustainable closed-end AIFs and the volume of assets they manage. A similar phenomenon occurs in open-end investment funds, where a considerable capital withdrawal has been recorded, breaking the sustained growth trend of previous years. This phenomenon could be interpreted as a reaction to external changes, such as international political instability, but it is more likely to be a necessary adjustment due to the inherent complexities of managing sustainable funds. Moreover, reforms are expected to be implemented between 2025 and 2026 aimed at simplifying the operations of these funds, such as the proposal to reduce the number of ESG indicators to report. However, until these changes materialize, the pressure on sustainable funds and their management companies will continue. The need to focus on transparency and regulatory compliance may, ironically, divert critical resources from generating real impact in sustainability. The importance of aligning fund investments with the European Union's environmental taxonomy cannot be underestimated. Although defined as optional, currently only a small percentage of investment funds are aligned with these guidelines. From 2022 to 2024, only 10% of assets under management in closed-end AIFs were aligned with the taxonomy, a figure that sharply contrasts with the 50% of funds classified as Article 8 and 9 under the SFDR. This mismatch reveals that, even when many funds are classified as sustainable, the true potential to generate a positive impact on the real economy is limited. Most funds that meet SFDR requirements focus more on reporting than on implementing investment practices that truly promote sustainability. This accountability-focused approach, while essential, may not be sufficient to address the urgent challenges facing the planet. In conclusion, as the European Union advances in its ambitious goal of being climate-neutral by 2050, sustainable closed-end AIFs face a period of adjustment and reevaluation. The necessary reforms to improve the transparency and effectiveness of these funds are urgent, and if not implemented, there is a risk that financial sustainability will remain merely a label, rather than becoming a tangible and transformative reality. The key will be finding a balance between transparency in reporting and genuine investment in a sustainable future.