Funds classified as Article 8 under the EU’s Sustainable Finance Disclosure Regulation (SFDR) registered the highest inflows of 2024 in the final quarter of the year, with a €52 billion (US$54 billion) surge of new investments, according to Morningstar Sustainalytics. This increase was entirely attributable to fixed-income funds, said Hortense Bioy, Head of Sustainable Investing at Morningstar Sustainalytics. On the other hand, Article 9 funds continued to experience outflows for the fifth consecutive quarter, meaning that taken together the two categories saw net redemptions over the full year. “In 2024’s bull market, investors simply preferred conventional equity strategies,” said Bioy. Looking ahead, Morningstar Sustainalytics expects to see a complete transformation of the EU ESG fund landscape in the coming months as the deadline for the European Securities and Markets Authority fund naming rules approaches. “Overall, we estimate that between 30% and 50% of ESG funds, representing between 1,200 and 2,200 funds, could see name changes, with term removals, additions, and potential mergers anticipated for smaller and underperforming funds. Investors will need to monitor any changes to their funds’ name and investment objective to understand the potential impact on their portfolios’ risk-return and sustainability profiles,” said Bioy.
