Capital inflows to Article 6 funds, as per the Sustainable Finance Disclosure Regulation (SFDR), saw a resurgence last year, driven by the rising popularity of exchange-traded funds (ETFs) tracking broad indices of stocks and bonds, in a further sign that costs and performance are more important for investors than stringent requirements on sustainability.

Article 6 Undertakings for the Collective Investment in Transferable Securities (UCITS) funds saw inflows of €101bn last year, a turnaround from -€208bn in 2022, according to the Fact Book 2024 published by EFAMA this week.

SFDR Article 6 bond funds attracted the highest net inflows with €92bn, with bond ETFs doing particularly well in 2023, the study added.

Article 6 funds have performed well, said EFAMA’s senior economist Thomas Tilley during a call this week introducing the Fact Book 2024.

Thomas Tilley at EFAMA

Thomas Tilley at EFAMA

He noted that most ETFs track broad indices; since not all stocks or bonds in these indices meet the SFDR sustainability criteria, such ETFs are typically classified as SFDR Article 6 funds by default.

Investors are increasingly retreating from deploying capital to Article 9 funds. Inflows into such funds – also calleld ‘dark green’ funds – decreased last year to just €3bn, from 20bn in 2022, according to EFAMA’s research.

“We see a big shift [in 2023] compared to 2022, when Article 9 funds were holding up quite well,” Tilley added.

Net inflows into SFDR Article 9 funds slowing down means that continuous investment in sustainable funds cannot be taken for granted, EFAMA’s president Sandro Pierri said in the report’s foreword.

Money market investments pushed inflows toward SFDR Article 8 funds that partially recovered, from -€75bn in 2022 to -€31bn in 2023, the report disclosed.

Increasing interest rates boosted inflows into bonds and money market UCITS funds to €144bn and €170bn, respectively, last year, according to EFAMA’s analysis. Multi-assets UCITS, instead, experienced their first net outflows in 10 years (-€120bn), it added.

Total assets under management (AUM) in UCITS funds grew by 10% year-on-year in 2023 to €13.1trn, slightly below average for the decade, according to Tilley.

The bulk of the growth (8.6%) in terms of AUM was the result of market appreciation of equities and bonds, and only a minor share of growth (1.4%) was due to net sales, he added.

The latest digital edition of IPE’s magazine is now available