Do Article 9 funds have to be 100% sustainable? (2024)

Do Article 9 funds have to be 100% sustainable?

Under the SFDR, Article 9 funds must be made up entirely of sustainable investments, with the exception of cash and hedging instruments.

What are the criteria for Article 9 fund?

Article 9 requirements:

The primary investment objective is sustainability. There is no significant harm done to other environmental- or social objectives. Information about sustainability characteristics and their impact is transparently disclosed.

What is Article 9 of the sustainable financial disclosure regulation?

SFDR Article 9: Dark green funds. Article 9 outlines the disclosure requirements for funds with distinct sustainability objectives, where majority of the portfolio consists of ESG-focused investments. These funds are often called 'dark green'.

What is the Article 9 fund benchmark?

As of March 2023, there were nearly 900 Article 9 funds. If these funds are benchmarked against a broad market-cap-weighted index, they will need to take action and identify an “objective-aligned” benchmark (9.1) or a PAB (9.3), if they are to maintain their Article 9 status.

Are Article 9 funds impact funds?

Using a new typology of sustainable investments, we show that Article 9 funds pursue varying degrees of ambition: while 60% of funds follow an impact-oriented investment strategy, we identify 40% that are not impact-related but rather pursue an Environment, Social, and Governance (ESG) investment strategy.

What is the difference between Article 8 and 9 funds?

SFDR Classifications

An Article 6 classification does not have a sustainable investment objective. An Article 8 classification promotes environmental or social characteristics, while Article 9 has a sustainable investment objective.

What is the objective of Article 9 fund?

In June 2022, the European Supervisory Authorities (ESAs) clarified ahead of the implementation of the Level-2 requirements on 1 January 2023 that Article 9 products need to invest exclusively in sustainable investments, with the only exceptions being liquidity and hedging purposes.

Who is exempt from SFDR?

The SFDR's broad scope applies to all financial advisers (FAs) and financial market participants (FMPs) based in the EU. The SFDR defines FAs as entities that provide investment or insurance advice. FAs with fewer than three employees are not required to provide information.

What is sustainable disclosure requirements?

Under the sustainability disclosure requirements, products that have a 'sustainable focus' must meet a credible standard of environmental and/or social sustainability, or align with specific environmental or social themes. The key challenge here is working out what constitutes a 'credible standard'.

What is the sustainable fund disclosure regulation?

The Sustainable Finance Disclosures Regulation (SFDR) empowers the Commission to adopt delegated and implementing acts to specify how competent authorities and market participants shall comply with the obligations laid down in the directive.

What is the largest Article 9 fund?

The largest Article 9 fund in Europe remains the Nordea Global Climate and Environment fund, which has €9.2bn in assets under management. This fund was recently profiled by Citywire Selector, which looked at its allocation approach and outlook for the sustainable investment sector.

What is Article 8 vs 9 ESG?

' Article 8 and Article 9 products consider sustainability in a binding way. In addition, Article 8 products promote social and or environmental characteristics and Article 9 products have a sustainable objective.

What is SFDR Article 9 impact investing?

Adhere to the “Do no significant harm” principle, which emphasizes the importance of assessing and mitigating any adverse impacts that may arise from an investment's business activity; An Article 9 fund must ensure that the companies it invests in follow good governance principles.

What is a dark green fund?

Funds which have sustainable investment as their goal - also called "dark green" funds. The funds invest in companies that aim to contribute to a more sustainable society. Article 8. Funds with specific sustainability criteria that promote environmental or social conditions - also called "light green" funds.

What is an Article 8 ESG fund?

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Investors use Article 6, 8, and 9 funds as labels. These distinctions help them understand the ESG performance of the funds they are considering investing in. An Article 8 fund is one that promotes environmental and/or social characteristics.

Does SFDR apply to private equity?

Complying with SFDR is vital for private funds to protect their reputation, attract investors who want to allocate their money sustainably, and meet the data demands of their LPs.

What is the Article 9 classification?

An Article 9 Fund under SFDR is defined as “a Fund that has sustainable investment as its objective or a reduction in carbon emissions as its objective.” There are a number of different requirements for Funds that promote a sustainable investment objective.

What is sustainable finance spectrum?

According to the European Commission, "Sustainable Finance is the process of taking into account environmental, social, and governance (ESG) considerations when making financial investment decisions." However, such a broad and palpable definition does not assure its prudent comprehension or application.

What is an Article 7 fund?

Principal Adverse Impacts (SFDR Article 7).

At the heart of the SFDR initiative is the concept of identifying and disclosing whether and how a financial product (including a fund) considers principal adverse impacts (“PAIs”) on sustainability factors.

Does SFDR apply to all funds?

The SFDR primarily applies to financial institutions operating in the EU (banks, insurers, asset managers, and investment businesses). Non-EU firms will be impacted indirectly due to EU subsidiaries, services offered in the EU, and market pressure.

Is SFDR mandatory?

The Sustainable Finance Disclosure Regulation (SFDR) imposes mandatory ESG disclosure obligations for asset managers and other financial markets participants with substantive provisions of the regulation effective from 10 March 2021.

Does SFDR apply to US funds?

The SFDR applies to all financial market participants and financial advisors that have EU shareholders or are explicitly marketing to EU shareholders. This means that a US-based business might be required to comply with the SFDR.

What are the three requirements for sustainability?

Understanding Corporate Sustainability

Sustainability's three main pillars represent the environment, social responsibility, and the economic pillar.

What is sustainable requirement?

The three major requirements for sustainable development are economic growth, environmental supervising authorities. and social inclusion. These three elements are interconnected with each other and these elements are associated with individual growth and societies.

Is sustainability disclosure mandatory?

The production of an annual sustainability report is a requirement. The sustainability report must include the following primary components: Material ESG factors. Climate-related disclosures consistent with the TCFD recommendations.

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