Around 40 per cent of European Article 9 funds would fail to qualify at the equivalent “Sustainable” rating under a proposed new framework, according to analysis by Clarity AI.
The findings come as the European Commission moves forward with plans to tighten sustainability fund labels under the latest iteration of the Sustainable Finance Disclosure Regulation,
In November, the European Commission published its SFDR 2.0 proposal, which would replace the current Article 8 and 9 framework with three new product labels — Transition, ESG Basics, and Sustainable . Each label including a requirement that at least 70% of their assets contribute to their given sustainability-related objective, as well as negative exclusions based on Paris-aligned and Climate-transition benchmark criteria.
The Clarity AI analysis of more than 21,000 EU investment funds found that the gap was even greater for Article 8 funds, which are ESG linked, and where roughly 80 per cent would fail to comply with the same proposed exclusion standards.
Pablo Díaz-Varela, ESG risk director at Clarity AI, says: “SFDR 2.0 reflects a broader shift toward more robust and comparable sustainability labels in Europe. As minimum standards and exclusions become more prominent, the focus will increasingly move from how funds are described to what is actually held in portfolios. Ensuring that the two are aligned will be key to maintaining investor trust.”
A key cause of fund exclusions to the updated criteria was increased stringency on exposure to fossil fuels such as oil and gas, according to the Clarity AI research.
