Upcoming SFDR review is an opportunity to make sustainable investing easier and more attractive for investors
The European Fund and Asset Management Association (EFAMA) has released today a new issue of its Market Insights series titled “The SFDR fund market – Latest market trends and the upcoming SFDR review”.
This is the third Market Insights focusing on the Sustainable Finance Disclosure Regulation (SFDR) Article 8 and Article 9 fund markets. It examines recent trends focusing on 2024, which was marked by net outflows from Article 9 funds. It also sheds light on evolutions by country and, for the first time, provides a breakdown of Article 8 and 9 fund net assets and net sales into UCITS and AIFs. Finally, it explores the upcoming SFDR review and offers recommendations for its future success.
SFDR market developments
Net assets of Article 8 funds remained broadly stable at 51% of the total UCITS and AIF market during 2024.
Net sales of Article 8 funds were positive throughout 2024, thanks to strong net inflows in MMFs and bond funds.
Article 9 funds show a steady decline in net assets during 2024, which was mainly a result of net outflows in recent quarters.
The negative net sales of Article 9 funds were primarily due to the relatively high share of non-ETF equity funds in the Article 9 market. These fund types saw a general sell-off over the past quarters as investors shifted en masse into ETFs.
Both Article 8 and 9 funds have a markedly higher share of UCITS than Article 6 funds.
Recommendations for the upcoming SFDR review
The SFDR review must increase transparency and accessibility for retail investors. Future categories should enhance understanding and engagement, enabling investors to make choices that reflect their sustainability preferences without feeling overwhelmed by jargon and excessive paperwork.
The SFDR must be aligned with the rest of the EU’s Sustainable Finance framework, particularly corporate sustainability reporting under the CSRD and the investor sustainability preferences outlined in the Markets in Financial Instruments Directive (MiFID) and the Insurance Distribution Directive (IDD).
Before implementing any changes to the SFDR, a thorough market impact analysis is necessary, focusing on whether amendments will improve consumer protection, foster product innovation, and respect the diversity of existing ESG strategies.
Thomas Tilley, Senior Economist at EFAMA, commented: “Recent outflows from Article 9 funds, which are funds with an explicit sustainability objective, may indicate changing sustainability preferences, but are more likely a reflection of investors’ strong preference for ETFs. To me, they underscore that the upcoming review of the SFDR framework is timely if we want to ensure sustained financing for the transition to a green economy.”
Andreas Stepnitzka, Deputy Director of Regulatory Policy at EFAMA, commented: “The upcoming SFDR review is a golden opportunity for policymakers to redesign the EU’s sustainable finance framework to make it more transparent and meaningful for investors. We must, however, take a coherent approach along the entire investment value chain and ensure that the corporate sustainability reporting, currently under revision, provides investors with a set of reduced but decision-useful ESG data points. This available data will fundamentally guide the SFDR review and how sustainable finance products are eventually presented to investors.”
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For further information, please contact:
Hayley McEwen
Head of communications and member development
About the Market Insights
EFAMA’s Market Insights series analyses recent industry trends and developments based on the latest available data and presents our findings in the context of current policy perspectives. We publish numerous concise reports each year covering diverse topics such as competitiveness, costs and performance, ETFs, alternative investments, retail investing, ESG fund markets, and more.
