Press Release
May 1, 2023

Press Release: Matter publishes white paper on ETF sustainability under SFDR

New analysis from Matter examines the differences between sustainable funds in Europe under SFDR, as managers prepare to reclassify

Copenhagen, May 1st, 2023


A new white paper entitled 'Dividing Lines', from Nordic sustainability insights provider Matter, presents a holdings-based sustainability analysis of the largest Exchange Traded Funds (ETFs) that classify as sustainable in Europe under the Article 8 and 9 classifications of SFDR, to better understand how evolving regulation and guidance from the European Commission has influenced their classification.

Confusion around how to define and calculate sustainable investments under the EU SFDR has triggered hundreds of ETFs, corresponding to approximately 270bn EUR in AUM, to downgrade from the Article 9 (dark green) to Article 8 (light green) classification, which has influenced the flow of capital in and out of these funds. Updated guidance published in April 2023 by the European Commission attempts to provide clarification but is likely to usher in a wave of reclassifications in the opposite direction, which would see recently downgraded funds being re-categorised as Article 9 once again.

To understand the implications of these classification changes, Matter has analysed the largest Article 8 and 9 ETFs, and specifically studied those that were downgraded at the end of 2022 and beginning of 2023 to understand how well SFDR classifications can help investors understand the sustainability of their investments.

"This report highlights the clear differences between funds pursuing different sustainability objectives. Thematic funds, which, following the downgrades, dominate the Article 9 classification, expose investors to companies prioritising solutions which contribute to the UN SDGs, whilst also at times exposing investors to higher negative impact and transitioning industries. This means that we see higher GHG emissions and misalignment with the SDGs than other approaches. ETFs tracking Paris-Aligned and Climate Transition Benchmarks, on the other hand, have much lower emissions and generally reduce their negative impact, but also do not expose investors to SDG aligned solutions to nearly the same extent. Both approaches are important, but distinct. The line between the two risks being blurred following the recent Q&A from the European Commission", says Emil Stigsgaard Fuglsang, COO and co-founder at Matter.

"Three different approaches dominate the sustainable ETF landscape currently. ESG, Paris-aligned and Thematic. Finding a way to effectively fit these within two classifications which account for their respective risks and opportunities, is an ongoing challenge for regulators. The last six months show that the question for regulators is how to strike a balance between Article 9 being too prescriptive to be usable for fund managers, and too discretionary for it to provide clarity to investors”, says Benjamin Barnett, Insights Lead at Matter and main author of the paper.


The paper presents the following findings:

Paris-aligned downgraded funds are more similar to Article 8 ESG funds than the remaining Article 9 funds which largely pursue thematic strategies: The ETFs that were downgraded from Article 9 to 8 have strikingly similar sustainability characteristics to the largest ETFs that were already Article 8 labelled. 


Downgraded and pre-existing Article 8 funds have similar environmental impacts: Downgraded Article 8 ETFs only expose investors to marginally reduced GHG emissions in comparison to the pre-existing Article 8 ETFs, despite prevalence of Paris-Aligned and Climate Transition Benchmark trackers.


Remaining article 9 ETFs are considerably more SDG-aligned than downgraded and Article 8 funds: Article 9 ETFs expose investors to considerably more investments in companies whose revenue is aligned with the UN SDGs as a whole, compared to both downgraded (majority Paris-aligned) and pre-existing Article 8 funds (majority ESG). This suggests that Article 9 ETFs pursue a more ‘solutions-focussed’ approach. 


Meeting Article 9 criteria depends hugely on calculation methodology: No Article 9 ETF manages to invest only in companies whose activities are 100% aligned with the UN SDGs according to Matter’s revenue-weighted methodology. However, if a revenue-threshold methodology (20% and above) is applied, 19/20 Article 9 ETFs meet the criteria. 


Article 9 ETFs underperform on principal adverse impacts: Article 9 ETFs (majority thematic) perform worse on average on the majority of Principal Adverse Impact indicators (PAIs), which refer to disclosure requirements under SFDR on the negative effects on sustainability at both entity and product level, than either downgraded funds (majority Paris-aligned) or pre-existing Article 8 funds (majority ESG). Similarly, Article 9 ETFs expose investors to greater levels of SDG misalignment (revenue generated from activities misaligned with SDGs) than their counterparts.


Article 9 ETFs show wide variation in their sustainability profiles: Wide variation exists between the performance of Article 9 ETFs on all aspects of sustainability.


The downgrades have clearly split the ETF landscape in two groups, between thematic, solutions-focussed funds (Article 9), and PAB/CTB and broad ESG funds (Article 8): Level 2 of SFDR and the resulting downgrades has largely divided Article 8 and 9 down strategy lines, with 18 out of 20 remaining Article 9 funds employing a ‘Thematic’ approach, 17 out of 20 downgraded ETFs employing ‘Paris-Aligned’ approaches, and 17 out of the 20 largest Article 8 ETFs employing broad-based ESG strategies (General Integration, Best-in-Class etc). 


SFDR fails to account for differences between ESG and Paris-aligned approaches

Although displaying similar sustainability characteristics, this divide fails to account for the long-term difference in strategy between ESG and Paris-aligned approaches, which are currently conflated under the Article 8 classification.


Enquiries regarding this announcement should be addressed to:

Emil Stigsgaard Fuglsang
+45 91 53 43 30


About Matter

Matter provides sustainability data, analytics and reporting solutions for asset managers, asset owners, banks and investment platforms.

The company’s products and services include analytics tools for sustainability analysis and regulatory reporting of portfolios and funds, and data offerings spanning companies’ alignment with the UN SDGs, their sentiment in global media, and actionable insights from domain experts and research organisations.

Matter is headquartered in Copenhagen, Denmark, and is serving customers in North America, Europe and APAC. The company’s solutions and data are used by investors managing and advising on more than €700bn of investments. For further information on Matter, please visit


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