Article 8 and Article 9 of the Sustainable Finance Disclosure Regulation (SFDR) are regulatory classifications that pertain to the environmental, social, and governance (ESG) characteristics of financial products, particularly investment funds. These classifications help investors and consumers understand the sustainability-related features and objectives of these products. The key differences between Article 8 and Article 9 funds, as defined in the Sustainable Finance Disclosure Regulation (SFDR), are related to their sustainability objectives and the extent to which they prioritise non-financial goals alongside financial returns:

→ Article 8 Funds

Article 8 of the Sustainable Finance Disclosure Regulation (SFDR) does not require funds to actively integrate ESG factors into their investment strategies and decision-making processes. Instead, it allows funds that promote environmental or social characteristics and have good governance practices to classify themselves as Article 8 funds.

These funds consider ESG factors when making investment decisions and portfolio selections. Their aim is to invest in companies or assets that exhibit positive ESG characteristics or practices.

Article 8 funds are required to disclose information about how they integrate ESG factors, the specific ESG characteristics they promote, and the extent to which these characteristics are met in their investments. The specific disclosure requirements for Article 8 funds include:

1. Funds must provide a clear and comprehensive description of how they integrate ESG factors into their investment strategies and decision-making processes.
2. They should disclose the specific environmental or social characteristics they promote or consider when selecting investments.
3. Article 8 funds are required to disclose the extent to which the promoted ESG characteristics are met in their investments. This disclosure helps investors understand the fund’s commitment to ESG integration.
4. Funds should explain how ESG factors influence their investment decisions and portfolio management practices.
5. Additionally, they should disclose any policies or measures in place to ensure that ESG considerations are effectively integrated into their investment activities.

These disclosure requirements are intended to provide investors with a clear understanding of how Article 8 funds approach ESG integration and how they consider sustainability factors within their investment strategies. The goal is to enable investors to make informed decisions that align with their sustainability preferences and objectives. Article 8 funds primarily seek financial returns for their investors. While they incorporate ESG considerations, their primary purpose is to generate competitive financial performance.

→ Article 9 Funds

Article 9 funds, as defined by the Sustainable Finance Disclosure Regulation (SFDR), are investment funds with a specific focus on making a positive impact on sustainability. These funds have non-financial objectives at the core of their investment strategies, and their primary purpose is to contribute to sustainability goals while providing financial returns. Examples of non-financial objectives that Article 9 funds may prioritise include:

1. Investing in renewable energy projects, energy efficiency initiatives, or sustainable transportation solutions.
2. Adoption of renewable energy sources like wind, solar, or hydropower, with the aim of contributing to the transition to a low-carbon economy.
3. Non-financial objectives related to social equality, such as investing in companies or projects that promote gender diversity, support disadvantaged communities, or advance social inclusion.
4. Invest in initiatives that reduce the environmental impact of farming practices, promote organic farming, or support fair labour practices in agriculture.
5. Investing in innovative clean technologies that have the potential to address pressing environmental challenges.
6. Improving access to healthcare services or education, particularly in underserved or developing regions.
7. Preservation of biodiversity, habitat restoration, or conservation efforts.
8. Community development initiatives, such as affordable housing projects, infrastructure improvements, or support for local businesses.

Article 9 funds face more stringent disclosure requirements compared to Article 8 funds. They must provide comprehensive information about their non-financial objectives, the methods used to pursue these objectives, and the impact measurement practices employed. Unlike Article 9 funds, which have a non-financial objective at the core of their investment strategy (e.g., a clear commitment to making a positive impact on sustainability), Article 8 funds primarily aim to meet financial objectives while considering ESG criteria. Both classifications aim to provide transparency and help investors make choices that align with their sustainability preferences and goals.