In the third quarter of 2024, Article 8 funds saw substantial growth, drawing in around €38 billion in net new money—marking the highest inflows since the end of 2021. However, this achievement remained overshadowed by the €96 billion net inflows into Article 6 funds, as highlighted in Morningstar Sustainalytics’ recent Q3 SFDR report.
Under the Sustainable Finance Disclosure Regulation (SFDR), Articles 6, 8, and 9 classify funds based on their approach to sustainability. Article 6 funds are those that do not integrate sustainability into their investment process, focusing primarily on financial returns without specific ESG considerations. Article 8 funds, often referred to as “light green” funds, promote environmental and social characteristics but do not have sustainability as their core objective. These funds include ESG factors in their investment decisions, though they may still invest in companies without high sustainability standards. In contrast, Article 9 funds, or “dark green” funds, aim for sustainable investments as a primary objective, targeting measurable environmental or social outcomes.
The report detailed key highlights in fund flows, showing actively managed Article 8 funds continuing to recover, pulling in nearly €27 billion in Q3, the largest inflows seen by these funds in nearly three years. Meanwhile, Article 9 funds continued to experience outflows for the fourth consecutive quarter, with €2.2 billion in redemptions—though significantly lower than the €6.5 billion withdrawn previously.
Combined, assets in Article 8 and Article 9 funds remain stable at roughly €6 trillion, maintaining their significant share of the EU fund market. Although slightly fewer new Article 8 and Article 9 funds were launched, these funds still made up 56% of all new EU fund launches. Fund closures were lower among sustainable funds, with 86 Article 8 and 9 funds closing compared to 209 Article 6 fund closures.
The report also touched on fund reclassifications, which reached their lowest level this quarter, with only about 10 funds, primarily moving to Article 8. Changes to fund names also persisted, with some funds adding or dropping ESG-related terms in anticipation of stricter anti-greenwashing regulations on the horizon.
Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, commented: “A worrying trend for this segment of the market is the continuously low interest in the darker green strategies, as represented by Article 9 funds and those Article 8 funds with high commitment levels to sustainable investments. This could be due to several reasons, including elevated interest rates which still plague green stocks, the uncertainty around the impact of anti-greenwashing rules on ESG strategies, as well as a general preference for mainstream exposures in the current macro and geopolitical environment. Despite all of this, Article 8 and Article 9 funds are maintaining their 60% share of the EU fund market.”
