Why are Article 8 SFDR Funds so popular?

Under the EU’s Sustainable Finance Disclosure Regulation (SFDR), financial products are classified into three categories:

• Article 6: products that do not integrate sustainability into investment decisions:
• Article 8: products that promote environmental or social characteristics; and
• Article 9: products that have sustainable investment as their explicit objective.

For more information on the categorisation of financial products under the SFDR, check this article.

Article 8 funds, often referred to as “light green” funds, must meet specific transparency requirements to substantiate their claims. These requirements aim to give investors the information they need to make sustainability-informed decisions, without necessarily requiring that the fund’s core purpose is sustainability.

Importantly, Article 8 funds are not required to make sustainable investments, but if they do, they must also comply with the EU Taxonomy criteria.

Growth & Challenges in the Market

Since the SFDR came into effect in March 2021, Article 8 funds have grown to become the backbone of Europe’s sustainable investment landscape. According to Morningstar, Article 8 funds currently make up the vast majority of sustainable fund assets in the EU, representing a substantial portion of the market.

This surge in Article 8 classification reflects not only regulatory compliance, but also a response to investor demand. Investors are asking for products that integrate ESG factors. Even if sustainability is not the fund’s main objective, demonstrating ESG alignment has become a commercial differentiator, particularly in public tenders, fund selection processes, and distribution partnerships.

For alternative fund managers, including private equity and infrastructure players, Article 8 classification is increasingly relevant in:

• LP due diligence: demonstrating a coherent ESG approach enhances credibility, even if the strategy is not impact-focused.‍
• Public tenders and co-investment opportunities: Article 8 classification often acts as a qualifying threshold.‍
• Exit planning: companies with clear ESG narratives and roadmaps tend to attract more interest from strategic buyers and ESG-conscious funds.

However, classification under Article 8 is not without challenges. Many asset managers struggle to interpret what exactly qualifies as “promotion” of ESG characteristics, leading to inconsistent application and concerns about greenwashing.

As a result, Article 8 funds are not just a compliance category, but a strategic positioning tool. They allow managers to demonstrate ESG integration without committing to the full rigor of Article 9, but they also carry reputational expectations, especially as calls for clearer definitions and “Article 8+” standards grow louder. More on the proliferation of Article 8+ Funds here.

Latest trends

As capital becomes harder to raise in a competitive, constrained environment, LPs (especially European pension funds, sovereign wealth funds, and large institutional investors) are scrutinising ESG and sustainability commitments more deeply and demanding transparency, data quality, and evidence of real improvements.

This creates a race to the top: LPs want to back managers who demonstrate credible, risk-managed, and value-enhancing ESG integration. In a capital-scarce environment:

• LPs are choosing to consolidate relationships with fewer GPs, and ESG leadership is a deciding factor.
• Fundraising success hinges on differentiation.
• Regulatory alignment (e.g. SFDR Article 8) becomes a market signal: it shows that the firm is proactively managing risks, has structured data collection systems, and is responding to EU regulatory expectations.

PE firms that lag in ESG reporting or greenwashing risk management are increasingly excluded from consideration, particularly in Europe.

Conclusion

In short, for many European fund managers, particularly those engaged in institutional fundraising, Article 8 status has become a commercial necessity. Investors, especially pension funds, sovereign wealth funds, and insurance firms, routinely use SFDR classification as a proxy for ESG quality in their screening processes. In several EU markets, Article 6 funds are effectively excluded from consideration altogether.

From a strategic standpoint, Article 8 classification also prepares managers for future regulatory convergence with frameworks like the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy.

Want to know more about how to upgrade your financial product to an Article 8? Check out this article.

If you're exploring the SFDR classification 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.