Risk & Compliance ESG & Sustainable Finance

Product qualification under the SFDR: Articles 9, 8, 6 and 8+ 

Date:April 20, 2022

With the entry into force of the SFDR in March 2021, financial market participants started qualifying their products enthusiastically. A necessary step to assess which disclosure requirements apply to a financial product. But what exactly is the distinction between these qualifications? Well, not an easy journey so it turned out.

Over a year later, it is still a learning by doing exercise most of the times. Nevertheless, some clarity has been provided. And with the European Commission finally adopting Level 2 SFDR on April 6, 2022, it seems a perfect time to compile all the developments on product qualifications so far.

Product Qualifications

For convenience and completeness, below the three product qualifications included in the SFDR:

  • An Article 9 product also referred to as a “dark green” product. This product has sustainable investments as its objective.
  • An Article 8 product also known as a ‘light green’ product. This is a product that promotes environmental and/or social characteristics, and where companies invested in follow good governance.
  • An Article 6 product also known as a ‘grey’ or ‘other’ product. This is a product that does not have a sustainable investment as its objective or promotes ecological or social characteristics. As the basic requirements in relation to pre-contractual information from Article 6 SFDR apply, such a product is often referred to as an Article 6 product.

Artikel 9

Based on the  AFM rapport implementation SFDR of September 2021 and the Q&A published by the European Commission just before, it has become clear that Article 9 products should only consist of sustainable investments.

A sustainable investment is defined in the SFDR (Article 2(17)(e)) and means – in short – an investment in an economic activity that contributes to an environmental and/or social objective, provided that these investments do not harm any of those environmental and/or social objectives, and the investee companies follow good governance practices.

So, if an Article 9 product invests in investments that are not sustainable, it cannot be qualified as an Article 9 product.

Only investment necessary for prudential purposes, such as hedging are excepted. Such investments do not need to have a sustainabley objective but should not harm social and/or environmental objectives, according to the European Commission.

Financial market participants offering Article 9 products must clarify how the (underlying) investments fall within the definition of sustainable investment as referred to in the SFDR. Last but not least, an Article 9 product must have a clearly defined and measurable sustainable objective.

Article 8+

The above shows stringent requirements apply to Article 9 products. Financial products that cannot meet these strict criteria may no longer be qualified as dark green.

As a result of the aforementioned AFM report, some financial market participants have started to reassess their products. In doing so, they come to the conclusion that some products qualified as Article 9 do not meet these strict criteria therefore no longer considered as an Article 8. But what to do with for example a fund that no longer qualifies as an Article 9, but does invest in some sustainable investments and is therefore “greener” than an average Article 8 product? 

Level 2 SFDR offers a solution. Take for example a dip into for pre-contractual information template for an Article 8 product. This template requests whether the Article 8 product includes sustainable investments. If it does, you can tick that box and indicate the minimum percentage. For simplicity reasons, the further breakdown of those sustainable investments into the Taxonomy Regulation is not in scope for this item.

Officially, this product remains an Article 8 product. But an article 8 product with sustainable investments. Such a product is often (unofficially) referred to in the market as an 8+ product.

Want to know more?

Reach out to author Klaske Beyer or contact Projective Group