Article 8 assets decline as product development holds steady

Funds with the Article 8 SFDR designation lost €30.3bn in the second quarter of 2022, though product development remained level with an estimated 183 fund launches across Article 8 and 9, according to a Morningstar report.

Flows into Article 9 'dark green' funds remained positive over the quarter, as investors poured €5.9bn into vehicles with the designation, though total Article 8 and Article 9 assets declined to €4.2trn amid volatile market conditions.

Their market share has now surpassed 50%, Morningstar's analysis found. In the last quarter, over 700 products changed SFDR status, with the majority upgrading from Article 6 to 8.

The EU introduced SFDR to the financial industry over 16 months ago, which requires asset managers to disclose information on the ESG risks of their investments and their impact on society.

Asset managers in a race to meet MiFID II ESG deadline

Less than 50% of surveyed Article 8 and Article 9 funds reported Principle Adverse Impact consideration and sustainable investment exposure as defined by SFDR, while just over one quarter disclosed taxonomy alignment.

Of the products that reported taxonomy alignment, just 2% targeted exposure higher than 10%.

According to Hortense Bioy, global director of sustainable research at Morningstar, different interpretations of both SFDR and the EU Taxonomy has led managers to adopt varying approaches in how they calculate sustainable investment exposure and taxonomy alignment, rendering product comparison challenging.

"Because of patchy data and a lack of direct comparability between products, financial advisers will struggle to fulfil their new obligations," she said.

Morningstar research: Article 8 funds suffer outflows for first time

Under MiFID II, coming into force on 2 August, advisers will be required to consider their clients' sustainability preferences when conducting eligibility assessments.

Asset managers are currently struggling to fulfil MiFID II regulation requirements just a week ahead of the 2 August deadline, according to FE fundinfo data.