Article 9 funds saw net outflows in 2024, highlighting growing investor hesitation and sparking calls for a more accessible sustainable finance framework, according to the European Fund and Asset Management Association’s (Efama) research.
The trade body noted a “steady decline” in Article 9 fund assets over the course of the year. This was largely attributed to outflows from non-ETF equity funds, which still make up a significant portion of the Article 9 market. As investors shifted decisively towards ETFs, many traditional sustainable equity strategies struggled to keep pace, according to Efama.
The EU’s Sustainable Finance Disclosure Regulation (SFDR), a key pillar of the EU’s Green Deal and Sustainable Finance Action Plan, classifies investment funds into three categories: Article 6 (non-ESG), Article 8 (“light green” – promoting ESG characteristics) and Article 9 (“dark green” – targeting measurable sustainability objectives). The regulation aims to redirect capital towards sustainable investments, manage ESG risks and enhance transparency across financial markets.
In contrast, Article 8 funds – which promote environmental or social characteristics without necessarily having a sustainable investment objective – fared better. They attracted net inflows throughout 2024, particularly in the money market and bond fund segments. Overall, their net assets held steady at around 51% of the total Ucits and alternative investment funds market.
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Efama also broke down Article 8 and 9 data by fund structure, revealing that both categories had a much higher proportion of Ucits compared to Article 6 funds, which are not marketed as sustainable.
Efama also suggested recommendations for the upcoming SFDR review. “The SFDR review must increase transparency and accessibility for retail investors. Future categories should enhance understanding and engagement, enabling investors to make choices that reflect their sustainability preferences without feeling overwhelmed by jargon and excessive paperwork,” it stated.
The trade body also called for greater alignment between the SFDR and other EU sustainable finance rules, including the Corporate Sustainability Reporting Directive and investor preference guidelines under the Markets in Financial Instruments Directive and the Insurance Distribution Directive. Such alignment, according to Efama, would reduce confusion and ensure consistency across the investment chain.
Finally, it stressed the importance of ” a thorough market impact analysis” before making any changes to the SFDR. “The goal should be to improve consumer protection, encourage product innovation, and respect the diversity of ESG strategies in the market,” it stated.
Thomas Tilley, senior economist, Efama, commented: “Recent outflows from Article 9 funds, which are funds with an explicit sustainability objective, may indicate changing sustainability preferences, but are more likely a reflection of investors’ strong preference for ETFs. To me, they underscore that the upcoming review of the SFDR framework is timely if we want to ensure sustained financing for the transition to a green economy.”
Andreas Stepnitzka, deputy director of regulatory policy, Efama, added: “The upcoming SFDR review is a golden opportunity for policymakers to redesign the EU’s sustainable finance framework to make it more transparent and meaningful for investors. We must, however, take a coherent approach along the entire investment value chain and ensure that the corporate sustainability reporting, currently under revision, provides investors with a set of reduced but decision-useful ESG data points. This available data will fundamentally guide the SFDR review and how sustainable finance products are eventually presented to investors.”
