SFDR Article 6, 8 and 9: What the Labels Mean, Principal Adverse Impact Indicators and the ESMA Fund-Naming Rules
Read SFDR disclosures correctly, calculate a principal adverse impact indicator, and apply the ESMA 80% naming test to a fund.
What you will learn
- What SFDR Article 6, 8 and 9 require, and why they are disclosure categories rather than quality labels.
- The SFDR definition of a "sustainable investment" and the minimum-share commitment.
- How to calculate a principal adverse impact (PAI) indicator.
- The ESMA fund-naming rules and where the 2025 reform proposal is heading.
Explanation
The Sustainable Finance Disclosure Regulation (SFDR), applying since March 2021, tells EU fund managers what to disclose. It was not written as a label system, but the market uses its article numbers as labels:
| Category | What the fund does | What it must disclose |
|---|---|---|
| Article 6 | No sustainability claim | Whether and how sustainability risks are considered |
| Article 8 | "Promotes" environmental or social characteristics | Which characteristics, binding elements, share of sustainable investments (can be 0%) |
| Article 9 | Has sustainable investment as its objective | The objective; in practice almost all holdings must be "sustainable investments" |
Article 8 is very wide: a fund that merely excludes controversial weapons and tobacco can be Article 8. Article 9 means a stricter self-declared commitment, not a verified "more green". Nobody audits the label; the supervisor (in Germany BaFin) checks documents, not holdings.
"Sustainable investment" under SFDR
Article 2(17) SFDR defines a sustainable investment in three parts: (1) contribution to an environmental or social objective, (2) no significant harm (DNSH) to other objectives, (3) good governance. The regulation does not say how to measure contribution; one manager may count a company with 20% green revenue as fully sustainable, another only the 20%. Article 8 funds state a minimum share of sustainable investments in their pre-contractual annex; 0%, 10% or 30% are all possible.
Principal adverse impact indicators
Principal adverse impacts (PAIs) are the negative effects of investments on sustainability factors, the double-materiality direction of lesson 1. The SFDR technical standards list 14 mandatory indicators for investee companies (GHG emissions, carbon footprint, GHG intensity, fossil-fuel exposure, non-renewable energy, biodiversity, water, hazardous waste, UNGC violations and monitoring, gender pay gap, board diversity, controversial weapons), two for sovereigns, two for real estate, plus at least one optional environmental and one social indicator. The most used one is GHG intensity of investee companies = Σ (weight of holding × holding's emissions ÷ holding's revenue).
ESMA fund-naming rules
ESMA (the EU securities regulator) issued naming guidelines, applying to new funds since 21 November 2024 and existing funds since 21 May 2025:
- Any ESG- or sustainability-related word in the name requires at least 80% of investments to be used to meet the fund's environmental or social characteristics or sustainable objective.
- "Environmental", "green", "climate", "impact" or "sustainable" additionally require the PAB exclusions (lesson 4), including the 1% coal, 10% oil and 50% gas rules; "transition", "social" or "governance" require the milder CTB exclusions.
- "Sustainable" also requires investing meaningfully in sustainable investments; "impact" an intention to generate measurable positive impact; "transition" a measurable transition path.
The reform (as of 2026)
On 20 November 2025 the European Commission proposed replacing the article numbers with three product categories ("Sustainable", "Transition", "ESG basics"), each with a 70% minimum share and mandatory exclusions, and abolishing entity-level PAI reporting. As of 2026 this is still a proposal; the Article 6/8/9 rules apply. Check the current status.
Worked example
Hypothetical example: the fictional "Aurora Green Equity" fund has €500 million of assets and three holdings (simplified). Emissions are Scope 1 and 2 in tonnes CO2e; revenue in € million.
| Holding | Weight | Emissions (t) | Revenue (€m) | Intensity (t/€m) |
|---|---|---|---|---|
| X | 50% | 200,000 | 1,000 | 200 |
| Y | 30% | 30,000 | 600 | 50 |
| Z | 20% | 900,000 | 3,000 | 300 |
Step 1 – PAI "GHG intensity": 0.50 × 200 + 0.30 × 50 + 0.20 × 300 = 100 + 15 + 60 = 175 t CO2e per € million revenue.
Step 2 – Article 8 commitment: the annex promises at least 20% sustainable investments: 20% × €500m = €100 million must qualify under the manager's Article 2(17) method.
Step 3 – naming test: 76% of investments meet the fund's environmental characteristics. Required: 80% × €500m = €400m; actual: 76% × €500m = €380m; gap €20 million. With "Green" in its name the fund is not compliant and must reallocate or rename. "Green" also triggers the PAB exclusions: holding Z, a utility with 60% of revenue from coal power, would have to go regardless of the 80% test.
Assumptions: three holdings instead of hundreds, no cash or derivatives; fees and taxes do not enter the calculation.
Common mistake
Practice activity
On paper: the fictional fund "Nordlicht Sustainable Leaders" has €200 million of assets, 82% of investments aligned with its characteristics, a minimum sustainable-investment share of 15%, and one holding (weight 3%) earning 12% of revenue from oil fuels. (a) Does it pass the 80% test? (b) How many euros must be sustainable investments? (c) Is the oil holding allowed under the naming rules, and why?
Show solution
(a) Yes: 82% ≥ 80%.
(b) 15% × €200m = €30 million.
(c) No. "Sustainable" triggers the PAB exclusions (10% or more oil-fuel revenue); 12% ≥ 10%, so the holding must be sold or the fund renamed. Whether 15% counts as "meaningful" sustainable investment depends on supervisory practice.
Limitations: the 80% share is measured on the fund's own definition of "aligned", which differs between managers.
Key takeaways
- Articles 6, 8 and 9 are disclosure categories, self-declared and not audited; read the minimum sustainable-investment share and the manager's Article 2(17) method.
- PAI indicators measure harm caused; GHG intensity = Σ weight × emissions ÷ revenue.
- Naming rules: 80% threshold, PAB exclusions for green/sustainable/impact words, CTB exclusions for transition/social/governance words; a 2025 proposal may replace the system.
Next step
The next lesson takes you inside the EU taxonomy: six environmental objectives, technical screening criteria, how a fund's taxonomy-alignment percentage is calculated and the gas and nuclear debate.
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