Funds classified as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR) have registered the highest inflows since late 2021, netting €38 billion of new money in Q3 compared to €26.5 billion in Q2, according to Morningstar Sustainalytics. In its latest review of Article 8 and 9 funds, the data provider observed that actively managed Article 8 funds also continued their flow recovery by garnering close to €27 billion in Q3 – with fixed income remaining the key contributor to Article 8 inflows. This, however, paled in comparison to Article 6 fund inflows, which amounted to €96 billion – indicating investors’ continued preference for those. Combined assets in Article 8 and 9 funds remained quasi-stable at €6 trillion, accounting for 61% of EU fund assets – though redemptions from Article 9 funds continued for the fourth consecutive quarter as investors pulled €2.2 billion out of these strategies (a small number compared to €6.5 billion previously). Newly incepted Article 8 and 9 funds, although declining, continued to represent more than half (56%) of the total number of EU fund launches. “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,” said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics. “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.” About 86 Article 8 and Article 9 funds closed in the third quarter, compared with 209 Article 6 funds, and reclassifications reached their lowest level at just over 10 – mostly to Article 8. So far this year, 104 Article 8 and Article 9 funds have changed names, of which 42 added ESG-key terms, 42 dropped ESG-key terms, and 20 swapped ESG-key terms. About 75% of Article 8 funds reported making some sustainable investments, while more than half (52%) held at least 30% of sustainable assets. Sustainalytics said it expected changes to the universe of sustainable funds to intensify in the coming months, ahead of deadlines for new anti-greenwashing regulations – including the EU’s fund name rules.
