Setting Up an Article 8 Fund: Three Approaches

As sustainable finance continues to gain ground, more fund managers are assessing whether and how to bring their investment products inline with Article 8 of the SFDR.These funds promote environmental or social characteristics and must meet specific disclosure requirements. Enhancing ESG performance can help attract capital, access new markets, and respond to rising investor expectations.

Check this article for an overview of each Article under the SFDR.

If you’re considering establishing or upgrading an Article 8fund, you’re likely evaluating the best way to operationalise it. Here are the three main approaches and their respective trade-offs.

1. Doing It Internally

In this approach, your internal team takes full responsibility for interpreting SFDR requirements, building policies, collecting data, and producing the necessary disclosures. It is cost-effective, as no external consultants are required, and it allows for full control over strategy, documentation, and workflows.

However, this method often comes with hidden resource costs.Assigning SFDR tasks to existing employees, especially if ESG is not their primary responsibility, typically leads to challenges. The workload is not trivial, and the training demands are significant. Without adequate time and focus, the quality and consistency of implementation can suffer. Furthermore, despite being managed internally, you'll likely still need to license software to measure Principal Adverse Impacts (PAIs) and support your reporting obligations.

Another major challenge is keeping up with the evolving nature of the SFDR. Regulatory interpretations are continuously developing, and there is a risk that internal teams may miss key updates or misapply certain rules, leading to compliance issues. This approach is therefore more suitable for fund managers who have well-established, experienced ESG and legal teams capable of maintaining regulatory alignment and internal coordination overtime.

2. Hiring a Law Firm or Consultancy

This approach involves outsourcing the development of SFDR documentation and strategy to legal advisors or sustainability consultants. It ensures strong legal compliance and offers the benefit of third-party validation, which can be particularly reassuring to investors.

That said, this option comes with high financial costs, especially if support is charged hourly, plus the price of the software needed to calculate the indicators. It also depends heavily on the advisor’s depth of knowledge on the SFDR. Many law firms may offer robust legal advice but lack the nuanced understanding of ESG indicators or operational needs specific to fund management. As a result, even compliant strategies may miss the opportunity to extract value from ESG data or align more meaningfully with investor expectations.

3. Using a Software Solution Provider

A third route involves working with a software provider that supports ESG data collection and regulatory reporting. These platforms vary widely in scope and specialisation:

• Generic ESG platforms offer broad ESG coverage, often based on surveys, but may not align fully with SFDR definitions or fund-level disclosures. Many are tailored to company-level reporting and may not meet the specific needs of fund managers.‍
• GHG accounting tools focus on carbon emissions tracking. While useful for climate strategies, they often overlook social and governance metrics and require supplementary tools to provide complete SFDR coverage.
• Integrated platforms like 414 provide a hybrid approach that combines compliance, ESG strategy, and emissions tracking in one solution.

Our experience working with SFDR in private markets over 4+years has taught us the importance of balancing rigour with usability. As a smaller, specialised team, we prioritise collaboration, enabling our clients to remain close to the process. We allow our users to review and iterate on documentation, ensuring they retain control over how their sustainability commitments are framed and communicated.

This approach provides an all-in-one solution that simplifies compliance while supporting broader ESG objectives. It is especially well-suited for lean teams and scalable across portfolio companies. While it involves some reliance on an external provider, platforms like ours mitigate this through data portability and export options, offering flexibility should you choose to transition or take operations in-house in the future.

Choosing What’s Right for You

Each of these approaches can work depending on your fund’s resources, ESG maturity, and strategic objectives. Some managers start internally and gradually shift to hybrid models. Others begin with external advisors and transition to in-house once systems are established. Increasingly, fund managers are opting for integrated solutions that offer both regulatory assurance and strategic ESG insight without the cost and complexity of full consultancy support.

If you're navigating these decisions and would like to learn from the experiences of others, feel free to reach out. We're always happy to share what we've seen work well across a variety of funds and markets.