Article 6, 8 or 9: What is the difference?

The EU Sustainable Finance Disclosure Regulation (‘SFDR’) establishes compulsory  environmental, social and governance (‘ESG’) disclosure requirements that asset managers must adhere to. The primary objective is to enhance transparency regarding their investment strategies, mitigating the risk of greenwashing.

By fulfilling these disclosure obligations, funds can demonstrate their commitment to responsible investing, helping investors make well-informed choices and fostering confidence in the promotion of sustainable and socially responsible investments. To better understand how data standardisation and transparency benefits investors, check this article.

Under the SFDR classification system, funds are categorised as Article 6, 8, or 9 based on their specific characteristics and level of sustainability. Due to the residual nature of Article 6 funds, we will address them last.

Article 8

Article 8 funds are those which promote environmental or social characteristics. Under the SFDR, the following must be provided:

1. Information on how the fund meets the environmental or social characteristics it promotes, or a combination of both, while ensuring that portfolio companies adhere to good governance practices. In this regard, measuring Principal Adverse Impact (‘PAI’) indicators — together with a relation of the     actions planned to improve them—, is the logical and extended practice to demonstrate how the fund promotes such objectives.
2. If an index has been designated as a reference benchmark, the disclosures must include information on whether and how this index aligns with the     aforementioned environmental or social characteristics.

Article 9

Article 9 funds are those that explicitly prioritise ESG objectives, distinguishing them from Article 8 funds. Article 9 funds place sustainability and responsible investment at the core of their strategies, making them distinct in terms of their primary focus.

At the core of their offering, Article 9 funds have a non-financial primary objective, setting them apart as more dedicated forerunners in sustainability. For this reason, they are considered “dark green” funds, signifying their deeper dedication to sustainable practices.

To comply with Article 9 requirements, these funds must not only provide the disclosures required of Article 8 funds but also include more comprehensive and detailed information. This includes specific targets and metrics demonstrating how their sustainable investments contribute positively to societal or environmental goals.

Article 6

Article 6 funds are investment funds that do not actively promote ESG characteristics or pursue sustainability as a primary objective. However, they may consider sustainability risks in their investment decisions in a similar way as they manage financial risks.

Under the SFDR, Article 6 funds must disclose how sustainability risks are addressed in their decision-making process, or explain why these risks are not considered relevant to the fund. This includes providing a “negative statement” that outlines their reasons for not measuring PAI indicators, nor aiming to improve in any other way the sustainability practices of their portfolio companies, and whether they have plans to do so in the future.

These disclosures are designed to enhance transparency, enabling investors to understand the role (or lack thereof) of sustainability factors in the fund’s strategy—even if sustainability is not a priority, not even as a secondary consideration.

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