Key Takeaways
- In the fourth quarter of 2025, Article 8 funds attracted EUR 72 billion of net new money, driven by fixed income strategies. Meanwhile, Article 9 funds bled money for the ninth consecutive quarter. Redemptions stood at EUR 7.2 billion.
- If SFDR 2.0 had applied in 2025, Article 8 (ESG Basics) funds would have captured a smaller share of EU fund flows (30% vs. 38% for FY 2025), Article 9 (Sustainable) flows would still have been negative, and Transition (Article 7) funds would have seen no net new money.
- Several important elements of SFDR 2.0 still require regulatory clarification, including: name and criteria of the new Article 8 (ESG Basics) category, how the 70% investment alignment threshold should be assessed, exclusions rules, the place of general-purpose sovereign bonds in the framework, how Paris-aligned funds should be categorised, and how to future-proof the three new product categories.
Overall, investors were cautious in 2025 amid rising geopolitical tensions, US tariffs and economic uncertainty. For sustainability-focused investors, this was compounded by the ongoing uncertainty over ESG regulations amid rollbacks and implementation delays in the US and EU.
During the fourth quarter, Article 8 funds netted an estimated EUR 72 billion of net new money. This marks a decrease from the restated EUR 79 billion in inflows seen in the prior quarter. But Article 8 funds captured a slightly larger share of overall EU flows in Q4 (41%) relative to Q3 (38%), as Article 6 funds also register smaller flows (of around EUR 109 billion).
Meanwhile, the situation continued to deteriorate for Article 9 funds, which have experienced outflows for the ninth consecutive quarter. Redemptions stood at EUR 7.2 billion, at a similar level to the third quarter.
Quarterly Flows Into Article 8 and Article 9 Funds Versus Article 6 Funds and Organic Growth Rates (%)
What Are Article 6, Article 8, and Article 9 Funds?
In the EU, under the Sustainable Finance Disclosure Regulation (SFDR), funds are classified as either Article 6, 8, and 9, describing different levels of sustainability. Article 8 funds promote environmental and/or social characteristics and are often called light-green funds. Article 9 funds have a sustainable-investment objective and are often called dark-green funds. Funds within the scope of SFDR that are neither Article 8 nor Article 9 are classed as Article 6 funds.
Over the whole of 2025, Article 8 funds garnered EUR 257 billion, representing 38% of all EU fund flows, while Article 9 funds saw total net withdrawals of EUR 23 billion.
Annual Flows Into Article 8 and Article 9 Funds Versus Article 6 Funds
Money Flows to Light-Green Bond Funds
Fixed income continued to dominate Article 8 fund flows in the fourth quarter of 2025, with subscriptions of almost EUR 53 billion and a greater allocation to investment-grade bonds relative to previous quarters, while diversified and high-yield bonds remained the largest beneficiaries in the fixed income segments. Consistently higher flows into Article 8 fixed income funds relative to Article 6 funds can partly be attributed to their relatively higher average credit quality, longer duration, and more attractive yields in a volatile and loosening interest rate environment.
Meanwhile, investors poured close to EUR 10 billion into equity funds classified as Article 8 during the fourth quarter, while Article 6 equity funds gathered USD 62 billion. While global emerging markets, Europe and US equity funds continued to attract new capital, global equity and other equity strategies bled money.
Net Flows Into Article 8, Article 9, and Article 6 Funds Per Asset Class
In the fourth quarter, net subscriptions into Article 8 funds were evenly split between active and passive strategies, with each attracting close to EUR 36 billion. Over the full year, however, active Article 8 funds recorded three times more net new money than their passive counterparts, contrasting with the trend of the previous three years. Nevertheless, passive Article 8 funds have continued to exhibit more consistent flows. For context, passive strategies account for over 13% of total Article 8 fund assets.
Meanwhile, actively managed Article 9 funds faced net withdrawals of EUR 7 billion in the fourth quarter, bringing total outflows for the year to EUR 23 billion. Passively managed Article 9 funds saw minor redemptions in the fourth quarter but still ended 2025 with EUR 2.6 billion in net outflows, their first annual outflows since the introduction of SFDR in 2021. At the end of December, passive strategies accounted for almost 18% of total Article 9 fund assets.
Article 8 and Article 9 Fund Assets Reach EUR 7.1 Trillion by Year-End
Driven by flows into Article 8 funds and market appreciation, combined assets in Article 8 and Article 9 funds stood at EUR 7.1 trillion at the end of 2025, up 4% over the last quarter. For context, the Morningstar Global Market Index advanced 3.3% over the same period.
In terms of assets, Article 8 funds’ market share remained at 56%, while that of Article 9 funds continued to decline, to 2.7% from 2.8%.
SFDR Fund Type Breakdown (by Assets)
Renaming Activity Returns to Pre-ESMA Fund Naming Guidelines Levels
After a busy first-half 2025, during which asset managers rushed to implement the EU’s ESMA fund naming guidelines ahead of the May 21 deadline, fund renaming activity declined considerably. The guidelines aim to protect investors against greenwashing risk and provide minimum standards for funds that use specific ESG terms in their names.
Between October and December, we identified 45 renamed Article 8 or Article 9 funds, including 21 that dropped their ESG-related terms altogether, 21 that replaced an ESG-related term for another, and three that added ESG-related terms. These changes bring the total number of renamed funds since January 2024 to at least 1,733, representing about 37% of funds in scope of the ESMA fund naming guidelines.
SFDR 2.0: How Flows May Shift
In November, we performed a preliminary impact analysis of the European Commission’s SFDR review published in November. The EU Commission proposes three new product categories with exclusion and qualifying criteria replacing the Article 8 and 9 disclosure regime, alongside simplified disclosure requirements. The new product categories are Transition (Article 7), ESG Basics (Article 8), and Sustainable (Article 9).
From our preliminary analysis and the consideration of two sets of assumptions, we concluded that, in aggregate, the number of EU funds categorized as sustainability-related (new Article 7, 8, and 9) would be significantly lower than the current Article 8 and 9 categories. Funds not categorized as sustainability-related (Article 6) would dominate, representing between 52% and 61% of the EU fund assets, from 41% today. Furthermore, the Transition category (Article 7) would represent a niche segment (up to 3%) of the EU fund market. The Sustainable category (new Article 9) may double in size but remain small, reaching up to 5% of EU fund assets. The ESG Basics category (new Article 8) would shrink and potentially represent 32%-41% of the assets, from 56% today.
How SFDR 2.0 Could Reshape the EU Fund Universe (Under Looser Assumptions)
Below, we assess what the quarterly flows in 2025 might have looked like had the new SFDR 2.0 categories been in place (based on our looser set of assumptions) and compared them with the actual flows under the current SFDR regime.
A greater proportion of net new money would have flowed into Article 6 funds, as expected. The share of Article 6 funds in total EU fund flows would have been six percentage points higher on average over the whole of 2025 (72% instead of 66%). The share of Article 8 (ESG Basics) funds in total EU fund flows would have been smaller by about 8 percentage points (30% instead of 38%).
Despite the projected doubling of Article 9 (Sustainable) fund assets under SFDR 2.0, flows into the category would still have remained negative, though slightly less so, with outflows amounting to 2% of total EU fund assets instead of 3%. Meanwhile, Transition (Article 7) funds would have seen no net new money for the year, as inflows in the second half of 2025 failed to offset outflows recorded in the first half.
Simulated 2025 Quarterly Flows Under SFDR 2.0 Compared With Actual 2025 Flows Under Current SFDR
The final exhibit shows the new product categories broken down by key asset class. As expected, Article 8 (ESG Basics) would remain the category most similar to Article 6. The new Article 9 (Sustainable) category would be more biased towards equity, yet less equity-heavy than it is today (around 60% compared with 67% today) as more fixed income and allocation strategies are expected to meet the criteria required for inclusion. Meanwhile, the Article 7 (Transition) category would be overwhelmingly dominated by equity strategies, which would account for roughly 80% of its assets.
SFDR 2.0 Fund Type Broken Down by Asset Class
SFDR 2.0 – Key Areas Requiring Further Guidance
As mentioned in our November analysis, several important details remain to be clarified in delegated acts, under SFDR 2.0. Below is a non-exhaustive list of details requiring clarification:
- Product category names. Particularly, “ESG Basics” for the new Article 8 category, which may need to be tested with retail investors.
- For the ESG Basics category, the notion of ESG “outperformance” remains unclear. It could be interpreted as a minimal improvement relative to a fund’s benchmark or, at the other extreme, as a requirement for every security to exceed the benchmark’s sustainability profile. The feasibility of meeting this criterion depends on asset class, investment universe size and the available data.
- Whether the 70% investment alignment threshold required for Article 7, 8 and 9 categories must be assessed at the level of each individual asset or at the overall portfolio level. Regulatory preference for asset-level calculation, as there is in the UK for SDR sustainability labels, would introduce operational complexity, particularly given persistent data gaps.
- Exclusion rules add further difficulty. It will prove challenging to find the granular data required to apply strict thresholds for restricted activities such as coal and other fossil fuels. The 1% revenue-threshold for coal is particularly problematic.
- The proposed exclusion of general-purpose sovereign, sub-sovereign and supranational debt issuances from the calculation of 70% investments for Articles 7 and 9 because there are “currently no comprehensive metrics for gauging” their sustainability risks diminishing the importance of the public sector in climate transition financing (Article 7) and sustainability objectives more generally (Article 9). At a minimum, a distinction between country and supranational issuers such as development banks could be made.
- Whether Paris-aligned funds should fall in the Transition or the Sustainable category. Paris-aligned strategies are required to be fossil-fuel free (meeting the Sustainable category criteria), but they also have a decarbonisation pathway which would make them natural candidates for the Transition category.
- The Transition category is arguably the hardest to define. Strict exclusions and limited data, especially for social transition metrics, risk making it too narrow to be workable. Companies with a strong transition story but that are also expanding their fossil fuel businesses (e.g., RWE) will not meet the exclusions criteria. Adding requirements such as active engagement could limit compliance to only the largest firms and active strategies. There is also the broader question of whether climate transition strategies can stand the test of time if the world does not decarbonise at the pace required. As more companies fail to meet their interim emission reduction targets, net-zero investment frameworks would need to adjust to avoid a reduction of the investable universe.
Overall, there seems to be industry support for SFDR 2.0’s move towards clearer and more stringent rules, seen as preferable to the current disclosure‑driven regime. But there is also a strong need for pragmatic, investable criteria that can be communicated simply and consistently to end‑investors. Alignment with other regulatory frameworks, particularly MiFID II, is essential to avoid fragmentation in distribution and suitability processes. While the Level 2 details are not expected before next year, asset managers will start scenario‑planning and preparing for potential reclassification as early as this year.
