Sustainable investing is booming. Investors are flocking towards sustainability funds to align their money with their values. But how do you know what separates one "green" fund from another? That's where SFDR Article 8 and Article 9 come into play.

Here’s what every serious investor needs to know.

SFDR: The Framework Defining Sustainable Investments

SFDR, or the Sustainable Finance Disclosure Regulation, was introduced by the EU in March 2021. Its primary goal is to increase transparency in sustainable investing. SFDR helps investors distinguish genuinely sustainable investments from those simply claiming to be green (often called greenwashing).

It categorizes financial products into three groups:

• Article 6: No ESG focus.

• Article 8: Promotes environmental or social characteristics.

• Article 9: Dedicated to sustainable investments.

Articles 8 and 9 are at the heart of sustainable investing, but they serve distinct purposes. Let’s explore their differences.

Financial product classification in SFDR

SFDR Article 8: Light Green Investments

Think of Article 8 funds as ESG-friendly options. They promote environmental or social characteristics but don’t necessarily have sustainability as their core objective. Here's what you need to know:

Key Features:

• These funds integrate ESG criteria into their investment processes.

• They must follow good governance practices, such as ethical management and employee relations.

Reporting Requirements:

• Pre-contractual disclosures explain how ESG characteristics are promoted.

• Annual reports assess sustainability performance using official templates.

Market Impact:

• Article 8 funds dominate the ESG space, making up around 88% of ESG assets under management (AUM) as of recent studies.

SFDR Article 9: Dark Green Investments

Article 9 funds go beyond promoting ESG—they make sustainability their primary goal. These funds are for investors who want their money to drive measurable change.

Key Features:

• Investments must contribute to specific environmental or social objectives, like climate change mitigation or biodiversity conservation.

• They adhere to the "Do No Significant Harm" (DNSH) principle, ensuring no harm to other sustainability goals.

Reporting Requirements:

• Pre-contractual disclosures outline sustainable investment methodologies.

• Annual reports track Principal Adverse Impacts (PAIs) and progress toward objectives.

Market Impact:

• Despite their ambition, Article 9 funds remain rare—only about 12% of ESG AUM falls under this category.

Why Does This Matter?

The distinction between Articles 8 and 9 is crucial for investors looking to align their portfolios with their values. While Article 8 funds offer flexibility and broad ESG integration, Article 9 funds provide a laser-focused approach to sustainability.

But here's the kicker: transparency is key. Both categories require detailed disclosures to prevent greenwashing—a practice where investments falsely claim to be sustainable.

How Do You Choose Between Article 8 and Article 9 Funds?

Here’s a quick checklist:

1. Define Your Goals: Are you looking for general ESG alignment (Article 8) or measurable impact (Article 9)?

2. Check Disclosures: Review pre-contractual documents for clarity on ESG strategies.

3. Evaluate Reporting Standards: Ensure funds provide robust annual reports on sustainability performance.

The bigger picture

In the rush to label funds as “green” or “sustainable,” it’s easy to lose sight of the real question: what impact does your money actually have?

SFDR Articles 8 and 9 are a signal that investing is evolving. That transparency matters. That values aren’t soft—they’re strategic.

But here’s the thing: no regulation can tell you what matters most to you. No label can replace clarity of intention.

Because investing sustainably isn’t about ticking a box. It’s about asking better questions. It’s about aligning your capital with your convictions—even if it takes a bit more effort. Even if it’s a little less convenient.

Ready to move beyond green labels - and invest in real-world impact? Discover how Penomo makes sustainable investing transparent, secure, and scalable.

Explore Penomo.