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Significant Article 9 Downgrade in Q4 2022

Some 40% of funds shifted from Article 9 to Article 8 categorisation under EU Sustainable Finance Disclosure Regulation (SFDR) in the final three months of 2022, according to Morningstar data. It said the move reflected regulatory change and uncertainty about how sustainable investments are defined. Article 8 funds “promote environmental or social characteristics” whereas there are more stringent rules for Article 9 funds that must have a “sustainable investment objective”. There has been huge confusion in the market on how to apply funds to article categories under the mandatory disclosure regime. An update to SFDR introduced in January appears to have added to confusion. As a result, fund managers are exercising caution, said Morningstar. Some 307 Article 9 funds were downgraded to Article 8 in the fourth quarter of 2022, with a combined asset under management (AUM) value of €170.1 billion. The trend has continued into 2023, with €99 billion of ESG funds downgraded to Article 8 in the first month of the year.  

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