Article 9 funds attract €5.9bn inflows

Sustainable_investingArticle 9 funds have gained popularity over their Article 8 counterparts, recording inflows of €5.9 billion in the second quarter of 2022.

Article 8 funds, meanwhile, recorded outflows of €30.3 billion over the same period, according to data by Morningstar.

Overall fund assets for Article 8 and 9 strategies were down over the quarter by 6.4% to €4.18 trillion.

Both categories have been in force since March 2021 under the EU’s Sustainable Finance Disclosure Regulation (SFDR).

Morningstar also reported that Article 8 and Article 9 fund assets surpassed 50% of the SFDR-aligned market share as Article 6-aligned fund assets dropped by 8.9% over the second quarter of 2022.

Article 8 and 9 product development remained stable, with Morningstar estimating 183 and 9 launches of these respective categories in the quarter. 

This was over half (60%) of the total new funds initiated in the EU in the same period.

A further 700 funds changed SFDR status over the quarter.

While there were 16 downgrades from Article 9 to Article 8, the majority of the changes were upgrades from Article 6 to Article 8.

Morningstar commented that this research has highlighted how challenging this period has been for the industry: “because of data patchiness and a lack of direct comparability between products, financial advisers will struggle to fulfil their new obligations”.

These new obligations include the Markets in Financial Instruments Directive II (MiFID II), which comes into force today (2 August).

The directive requires financial advisers to consider clients’ sustainability preferences when conducting suitability assessments. As such, if a client expresses interest in making sustainable investments, advisors will have to accommodate them.

Furthermore, clients now may also choose only investments that consider principle adverse impacts (PAI).

Yet, Morningstar found that only 43% of Article 8 and 9 funds cover PAI consideration.

Morningstar added in its commentary: “Investors should brace themselves for a confusing investment product landscape when the amended MiFID II goes live.

“There is no doubt that financial advisers themselves will struggle to fulfil their new obligations. Many will have to teach themselves while they educate their clients about the new, complex, and growing landscape of sustainable investments.”

© 2022 funds europe


Global Fund Management Regulatory Outlook 2023
The financial services industry is no stranger to frequent regulatory upheaval and scrutiny, however the past year has been particularly demanding on market participants.

This whitepaper details key regulatory changes scheduled and pending in 2023, and how they will impact fund managers and fund distributors.
Download whitepaper now »