SFDR Article 8 Funds Netted the Highest Inflows in Three Years. What’s Behind Their Growth?

The fourth quarter of 2024 brought new money for some of European Union’s sustainable funds, which are governed by the Sustainable Finance Disclosure Regulation, or SFDR.  

“Light green” Article 8 funds saw a significant uptick in investor interest. Article 9 funds, which have sustainable investment as their core objective, continued to face challenges.  

What’s behind this trend? 

Our researchers dissected Article 8 and Article 9 funds with Morningstar’s climate data.  

For more in-depth analysis, download the SFDR funds report. 

Under the Sustainable Finance Disclosure Regulation, EU asset managers must provide more information on sustainability risks and the impact of investment products. The level of disclosure depends on a product’s classification as an Article 8 or Article 9 fund. 

Article 8 funds promote environmental or social characteristics. Holdings should generally help attain the environmental or social characteristics promoted.

Funds that promote an environmental characteristic must additionally disclose alignment with the EU Taxonomy of Sustainable Activities. These funds also must indicate if they invest a proportion in environmentally sustainable investments.

All Article 8 and Article 9 products must disclose if they consider Principal Adverse Impact indicators. These capture the potential negative impact of financial products on:

• Environmental, social, and employee matters.
• Respect for human rights.
• Anticorruption and antibribery matters.

The Sustainable Finance Disclosure Regulation outlines 64 indicators. Of these, 14 are currently mandatory (on a comply-or-explain basis) for corporate investments:

• Greenhouse gas emissions.
• Carbon footprint.
• Greenhouse gas intensity of investee companies.
• Exposure to companies active in the fossil fuel sector.
• Share of nonrenewable energy consumption production.
• Energy consumption intensity per high impact climate sector.
• Activities negatively affecting biodiversity-sensitive areas.
• Emissions to water.
• Hazardous waste ratio.
• Violations of the UN Global Compact principles and Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises.
• Lack of processes and compliance mechanisms to monitor compliance.
• Unadjusted gender pay gap.
• Board gender diversity.
• Exposure to controversial weapons.

Two are mandatory for sovereign and supranational issuers:

• Greenhouse gas intensity of investee countries.
• Number of investee countries subject to social violations.

And two are mandatory for real estate assets:

• Exposure to real estate assets involved in the extraction, storage, and transport of fossil fuels.
• Exposure to energy-inefficient real estate assets.

Article 8 funds attracted an estimated EUR 52 billion in net new money during the fourth-quarter of 2024, marking the highest quarterly inflows of the year. This surge was primarily driven by increased subscriptions to fixed-income funds, reflecting investor confidence in the bond market and improving macroeconomic conditions. 

Active and passive Article 8 funds benefited from this trend, with active funds garnering EUR 36.3 billion and passive counterparts receiving EUR 15.7 billion in new investments. 

In contrast, Article 9 funds experienced their fifth consecutive quarter of net outflows, with investors withdrawing a record EUR 7.3 billion in the fourth quarter of 2024, up from EUR 3.0 billion in the previous quarter. This trend underscores ongoing investor caution or reevaluation regarding funds with explicit sustainable investment objectives. 

Meanwhile, Article 6 funds continued to dominate flows, attracting EUR 85.4 billion in net subscriptions during the fourth quarter. 

At the end of the third quarter of 2024, Article 8 funds made up most of the European Union fund universe. 

Despite the divergent flow patterns, combined assets under management in Article 8 and Article 9 funds reached EUR 6.1 trillion by the end of December 2024, accounting for 60% of the total market share—a slight increase from the previous quarter.  

In the fourth quarter of 2024, asset management firms launched 194 Article 8 and Article 9 funds. 

Overall, the number of new Article 8 and Article 9 funds declined slightly in 2024. However, these funds continued to represent a significant portion of new fund launches in the EU, comprising 58% of the total.  

Asset managers have been adding, dropping, and changing ESG-related terms of existing funds, reflecting changes (or not) in investment objectives and portfolios. Since the fourth-quarter of 2023, funds have been dropping ESG-related terms from their names. 

Rebranding activities increased in the fourth quarter. At least 65 funds changed names, a significant rise from 33 in the previous quarter.  

We expect this trend to intensify as asset managers prepare to comply with the European Securities and Markets Authority guidelines by May 21, 2025.  

ESMA’s guidelines aim to protect investors against greenwashing risk and provide minimum standards for funds that use specific ESG terms. The minimum requirements vary depending on the terms used in fund names, which have been grouped into six distinct categories:  

• Environmental 

• Sustainability 

• Impact 

• Social 

• Governance 

• Transition 

We anticipate 30% and 50% of in-scope funds may undergo name changes, affecting 1,200 and 2,200 funds. These changes will include removing, adding, or swapping ESG-related terms and potential fund mergers. 

For financial advisors and wealth managers, staying abreast of these trends is vital to aligning investment strategies with regulatory frameworks and client expectations. Through proactive engagement, advisors can capitalize on emerging opportunities and manage potential risks in sustainable investing. 

The evolving dynamics of Article 8 and Article 9 funds present both opportunities and challenges for financial advisors and wealth managers: 

Client Portfolio Alignment: The increased inflows into Article 8 funds suggest a growing client interest in investments that promote environmental or social characteristics. The amended MiFID II directive requires financial intermediaries to consider clients’ sustainability preferences when assessing suitability. If clients express interest in sustainable investments, they must accommodate. Advisors should assess whether these funds align with clients’ sustainability preferences and risk profiles. 

Product Selection and Diversification: With the growing importance of Article 8 and Article 9 funds, advisors have an array of sustainable investment products to consider. Comprehensive due diligence on these funds’ characteristics and strategies will be essential in constructing diversified, resilient client portfolios. 

Leverage Morningstar Direct to identify and analyze Article 8 and 9 funds under the Sustainable Finance Disclosure Regulation. By using the “EU SFDR Fund Type” data point, advisors can filter and compare sustainable investment options, assess fund classifications, and ensure alignment with clients’ sustainability preferences and regulatory requirements.  

For a more detailed breakdown, download the Article 8 and 9 research report. The full report covers:

• Top 20 asset managers by Article 8 fund assets.
• The 20 largest Article 8 funds.
• The asset class mix of Article 8 funds.
• The 10 Article 8 funds with the highest inflows and outflows.