No. Article 9 products do not have to invest 100% in sustainable investments. They can include other assets (e.g., hedging, liquidity, or tools needed to meet the product’s objective) as long as these do not undermine the sustainable investment objective and comply with the SFDR definition, including “do no significant harm”.
Must a product to which Article 9(1), (2) or (3) of Regulation (EU) 2019/2088 applies only invest in sustainable investments as defined in Article 2(17) SFDR? If not, is a minimum share of sustainable investments required (or would there be a maximum limit to the share of “other” investments)?
Recital 21 of Regulation (EU) 2019/2088 of the European Parliament and of the Council6 (‘SFDR’) makes it clear that sustainable financial products with various degrees of ambition as to “sustainability” have been developed to date. Accordingly, where such financial products do not have ‘sustainable investment’ as their objective, as referred to in Article 9 SFDR, they are considered to fall under Article 8 of that Regulation. Article 8 and Article 9 SFDR are two distinct product categories: financial products that promote environmental or social characteristics or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices, and financial products which have sustainable investment as their objective respectively. The two distinct product categories are key to determine the access of end investors to financial products that are ambitious enough to meet their sustainability preferences. Design of financial products subject to Article 9 A financial product to which Article 9(1), (2) or (3) SFDR applies may invest in a wide range of underlying assets, provided these underlying assets qualify as ‘sustainable investments’, as defined in Article 2, point (17), SFDR. The Commission’s replies to Q1 of Q&As of March 2023 clarify that the SFDR does not prescribe a single methodology to account for sustainable investments. Article 5 and recital 19 to Regulation (EU) 2020/852 of the European Parliament and of the Council2 also clarify that ‘sustainable investments’ include investments into ‘environmentally sustainable economic activities’ within the meaning of that Regulation. A financial product, in order to meet requirements in accordance with prudential, product-related sector specific rules may next to ‘sustainable investments’, also include investments for certain specific purposes such as hedging or liquidity which, in order to fit the overall financial product’s sustainable investments’ objective, have to meet minimum environmental or social safeguards, i.e. investments or techniques for specific purposes must be in line with the sustainable investment objective. Since Article 9 SFDR remains neutral in terms of the product design, or investing styles, investment tools, strategies or methodologies to be employed or other elements, the product documentation must include information how the given mix complies with the ‘sustainable investment’ objective of the financial product in order to comply with the “no significant harm principle” of Article 2, point (17), SFDR.
European Commission
