We look at the relationship between SDFR classification and SDG alignment, and shed light on some SDGs that could hold real opportunities for investors.

The now well-established Sustainable Finance Disclosure Regulation (SFDR), has 3 classifications that segment investment funds based on their sustainability purview:

  • Article 6: Funds without a sustainability scope
  • Article 8: Funds that promote environmental or social characteristics – but essentially seek to avoid harm (light green)
  • Article 9: Funds that have sustainable investment as their objective (dark green)

Article 8 and 9-labelled funds reached the €5tn mark this year – so truth in labelling is important. We asked ourselves, ‘What relationship exists between the article classifications and the SDGs? Are Article 9 funds providing solutions to meet environmental and social goals?


The analysis

Our SDG data allows investors to quantify alignment to the SDGs based on companies’ products and services (what they make) or in combination with companies’ ESG operational factors (how they make things, for example with fewer carbon emissions or more diverse leadership).  For this research, we chose to measure SDG alignment holistically, considering both revenue and operations.

To better understand the relationship between SFDR category and impact, we examined the five largest funds by AUM for each category(1).  For Article 6, we only looked at non-index funds. The fund selection was based on AUM data as of May 2023.


Table 1: The funds used in our analysis

Article 9 Article 8 Article 6
Nordea 1 Global Climate and Environment DWS Top Dividende Dodge & Cox Stock Fund
Pictet – Water Morgan Stanley Global Brands Fund American Funds Fundamental Invs A
Pictet – Global Environment Opportunities BlackRock World Healthscience Fund Fidelity Contrafund
Blackrock Sustainable Energy Fund Fidelity Global Technology Fund Strategic Advisers Fidelity US Total Stock
Mirova Global Sustainable Equity Fund Fidelity Funds Global Dividend Fund Vanguard PRIMECAP adm


For an individual fund, we measure SDG alignment and misalignment on each SDG relative to its market benchmark. For each SFDR category, we aggregate the AUM weighted individual funds’ SDG alignment.

For this analysis using both revenue and operational data, we measure SDG alignment in standard deviations because we are combining diverse metrics like revenue in dollars, carbon emissions in tonnes, and gender equality in percentages. Using standard deviations allows us to normalize these varied metrics, accounting for their differences in scale and measurement unit. This provides a more consistent and meaningful comparison across funds, giving investors insights that are both statistically sound and genuinely reflective of SDG alignment. Our methodologies are always transparent and documented. If you would like the details, get in touch.


The findings

Category level SDG alignment: Credit where credit is due – at a high level, each SFDR category appears to align to its stipulated sustainability mandate. Notably, Article 9 funds have a +1.6 net SDG alignment, Article 8 funds portray a modest +0.5 alignment, while Article 6 funds exhibit a -1.5 misalignment.

Asset managers often find themselves under intense scrutiny, with accusations of greenwashing frequently making headlines. While it’s undeniable that there are outliers who may not always uphold the highest standards, it’s essential to recognize the commendable efforts of the majority.


Fund level SDG alignment: Table 2 (below) shows that individual funds labelled as sustainable or green have very different impacts, as our prior research has shown.

A granular analysis unveiled big differences within the same SFDR classifications.

The most surprising finding of this research is that two Article 8 funds (Blackrock World Healthscience Fund and DWS Top Dividende) had net negative SDG alignment, and were less aligned that an Article 6 fund (Vanguard PRIMECAP adm).

The Article 8 DWS Top Dividende fund (-0.99) trails behind some Article 6 funds in overall SDG alignment. As another example, the BlackRock World Healthscience Fund (-0.97) does quite well on alignment to SDG 3, Good Health and Well Being – not surprising given its strategy – but its overall SDG alignment is no better than top Article 6 funds.

Looking across categories, select Article 8 funds including the Fidelity Funds Global Dividend Fund (+2.06), are better than some Article 9 funds in their overall SDG alignment.

This is a vivid demonstration that not all funds – even those within a singular SFDR classification – have equivalent ESG, impact, or SDG alignment.


Table 2. Largest Funds ranked by net SDG alignment:

Rank Article Fund Net SDG Alignment
1 9 Pictet – Water 2.62
2 8 Fidelity Funds Global Dividend Fund 2.06
3 9 Blackrock Sustainable Energy Fund 1.74
4 8 Fidelity Global Technology Fund 1.6
5 8 Morgan Stanley Global Brands Fund 1.54
6 9 Pictet – Global Environment Opportunities 1.42
7 9 Nordea 1 Global Climate and Environment 1.29
8 9 Mirova Global Sustainable Equity Fund 0.42
9 6 Vanguard PRIMECAP adm -0.52
10 8 BlackRock World Healthscience Fund -0.97
11 8 DWS Top Dividende -0.99
12 6 Strategic Advisers Fidelity US Total Stock -1.14
13 6 American Funds Fundamental Invs A -1.19
14 6 Fidelity Contrafund -1.34
15 6 Dodge & Cox Stock Fund -2.38

There are potential areas where investors can create differentiated strategies that stand out from other Article 8 or 9 funds.

SDG-specific alignment: Individual SDG alignment provides further insight. Across all categories, alignment is generally positive for SDG 5 (Gender Equality), SDG 14 (Life Below Water), and SDG 15 (Life on Land).  However, certain goals, like SDG 1 (No Poverty) and SDG 4 (Quality Education) have low alignment across the board, underscoring potential areas where investors can create differentiated strategies that stand out from other Article 8 or 9 funds. Opportunities also exist to stand out from the very crowded climate space using Impact Cubed’s Smart ESG tool which can screen and optimize for tracking error alongside SDGs with more social or economic focus.



Implications for Institutional Investors

SFDR Article 6, 8 and 9 classifications are an easy allure – a good starting point for an investor who wants to do a high-level screening of a group of funds for overall SDG alignment. Our analysis shows the categories are, in general, directionally correct and probably good enough for an investor that is happy with a tick the box approach.

But the nuanced landscape revealed by the juxtaposition of SFDR classifications on SDG data for individual funds underscores a crucial fact: SFDR category, while structured, does not give an investor a transparent or granular view of a fund’s impact.  There’s also no guarantee that a deep green fund has more impact than a light green fund.

Therefore, investors who want impact (and we suspect that is precisely those investors who are investing in Article 8 or 9 funds!) will want to avoid the temptation to over-rely on SFDR categories. Instead, an analytical approach is a more accurate way to gauge a fund’s commitment to the SDGs and broader ESG principles. A portfolio SDG report then becomes a faster, easier way to tell the impact story – backed up by factual data – behind an Article 8 or 9 investment strategy.

A data-backed approach also means investors can spot unsung heroes, like the Fidelity Funds Global Dividend fund, with higher SDG alignment than some of the Article 9 classified funds.

SDG data also shows where there are opportunities to create new investment products customised for client mandates or targeting specific SDGs for thematic strategies, for example, with Smart ESG portfolio optimisation.


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1 – Morningstar’s Sustainable Funds review