Article 8 and Article 9 funds saw outflows amid macroeconomic pressures and a diminishing investor appetite for ESG and sustainable products in Q4 2023, data showed.
According to the Morningstar’s research: “The EU’s Sustainable Finance Disclosure Regulation (SFDR) requires asset managers to provide more information on the sustainability risks and impact of their investment products sold in the EU, with the level of disclosure depending on the sustainability objective of the products.”
Article 8 funds, which include funds with various levels of commitment to sustainable investments, experienced their largest quarterly outflows on record, with investors withdrawing €26.7 billion in the last three months.
Similarly, Article 9 funds, designed for investments with a substantial impact on sustainability, recorded their first quarterly outflows, with €4.7 billion withdrawn during the same period.
In contrast, Article 6 funds maintained “positive momentum”, attracting €15.7 billion in net new money during the last quarter of 2023.
Looking at all of 2023, Article 8 funds saw net outflows of €27 billion, while Article 9 funds collected €4.3 billion. In contrast, Article 6 funds outperformed, garnering a substantial €93 billion in net inflows.
Despite the challenges, the combined assets of Article 8 and Article 9 funds increased by 1.7% over the quarter, reaching a new record of €5.2 trillion. Together, these funds represent nearly 60% of the EU universe, primarily due to ongoing reclassification from Article 6 to Article 8 or 9.
Additionally, during this period, 256 funds altered their SFDR status. Among these, 218 upgraded to Article 8 from Article 6, while only four funds downgraded to Article 8 from Article 9.
Actively managed funds bore the brunt of the outflows in both the fourth quarter and the entire year, while passive funds continued to sustain positive momentum.
Despite the negative flows, assets in Article 8 or 9 funds, excluding money market funds, reached a new record last year, at €5.2 trillion, representing 60% of total assets in EU funds, highlighted Hortense Bioy, global director of sustainability research, Morningstar.
“Just short of three years since SFDR came into force, the overall flow picture for Article 8 and Article 9 funds looks bleak. However, unpacking the latest outflows for Article 8 funds shows that passive ESG funds continue to hold up well. Investors still favour funds with a commitment to sustainable investments over those with no commitment,” Bioy added.
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