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SFDR Article 8 and Article 9 Funds: Changing Landscape in Sustainable Funds
Market Outlook

SFDR Article 8 and Article 9 Funds: Changing Landscape in Sustainable Funds

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27 OCT, 2023

By RankiaPro Europe

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In the ever-evolving world of sustainable finance, asset managers are continuously adapting to meet the requirements of the Sustainable Finance Disclosure Regulation (SFDR). Despite the challenging economic and regulatory environment, they have persevered in shaping their investment offerings to align with SFDR standards.

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"Two and a half years after SFDR came into force, and despite the challenging macroeconomic and regulatory environment, asset managers continued to shape their offerings around the regulation, upgrade funds to Article 8, and commit to more sustainable investments. With the new SFDR consultation launched by the EC in September, we can expect more uncertainty ahead.”

<strong>Hortense Bioy, Global Director of Sustainability Research, Morningstar</strong>

Article 8 Funds Grapple with Persistent Outflows

The path to sustainable investing has not been without hurdles. Article 8 funds, those with a commitment to sustainable investments, saw investors withdrawing EUR 20.5 billion in the third quarter. This followed a redemption of EUR 21.5 billion in the previous quarter, highlighting the persistent macroeconomic pressures faced by these funds. Notably, those funds with no sustainable investment commitment suffered disproportionately.

Article 9 Funds Experience a New Low

On the flip side, Article 9 funds, designed for investments that significantly contribute to environmental or social objectives, had a challenging period. They attracted just EUR 1.4 billion in the last three months, marking a new low. This data underscores the complex environment in which asset managers are operating as they seek to balance sustainable investing with market dynamics.

Reclassifications and Evolving Strategies

One significant trend observed in the market is the ongoing reclassification of funds. In the third quarter, nearly 280 funds altered their SFDR status, with 250 upgrades reported. The majority of these moves were from Article 6 to Article 8, indicating a stronger commitment to sustainability. However, 11 funds were downgraded from Article 9 to Article 8, signaling a shift in strategy for some asset managers.

Fine-Tuning Sustainable Investment Measurements

Asset managers are also fine-tuning their measurement of sustainable investments within their portfolios. In the third quarter, close to 300 Article 8 funds revised their minimum sustainable-investment commitment, representing a notable increase from the previous quarter. While the majority increased their sustainable investment commitment, it's worth noting that a third of Article 8 funds still do not target any sustainable investments.

Sustainability and Impact

A noteworthy finding is the relationship between the level of sustainability commitment and its impact on factors such as carbon footprint and gender pay gap. Article 8 funds with a stronger focus on sustainability tend to exhibit lower negative impacts on these factors, but the connection between sustainability co

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