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Where Taxonomy Meets Investment Products
The Taxonomy Regulation directly amends SFDR by adding specific disclosure requirements for financial products. The connection is through Articles 5, 6, and 7 of the Taxonomy Regulation. For the detailed SFDR templates requiring taxonomy alignment data, see our EU SFDR course on Taxonomy Alignment Disclosures.
The Three SFDR Product Categories and Taxonomy
Article 9 Products (Sustainable Investment Objective)
These are products that have sustainable investment as their objective. They must disclose:
- Which environmental objectives the product contributes to
- What proportion of investments are in taxonomy-aligned activities
- A visual breakdown (often a pie chart in the pre-contractual annex)
The expectation is that Article 9 products have a meaningful proportion of taxonomy-aligned investments. A product marketed as sustainable with 2% taxonomy alignment would raise questions.
Article 8 Products (Promoting E/S Characteristics)
These products promote environmental or social characteristics but don't have sustainability as their core objective. They must disclose:
- Whether and to what extent investments are in taxonomy-aligned activities
- A disclaimer that the DNSH principle under the taxonomy applies only to the taxonomy-aligned portion of the investments
Article 6 Products (Everything Else)
Products that don't promote environmental characteristics or have sustainability objectives. They must include a statement that:
"The investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities."
How it looks in practice:
An Article 8 ESG equity fund might disclose:
- 15% of investments in taxonomy-aligned activities
- 35% in taxonomy-eligible but not aligned activities
- 50% in non-eligible activities
- The remaining portfolio assessed against the fund's own ESG criteria
An Article 9 climate fund might disclose:
- 45% taxonomy-aligned
- 25% taxonomy-eligible but not aligned
- 30% non-eligible (including cash, hedges, and activities not yet covered by the taxonomy)
The taxonomy doesn't cover all economic activities. Even a highly green fund will have non-eligible holdings because sectors like education, healthcare, and many services don't yet have taxonomy criteria. A fund with 100% taxonomy alignment is practically impossible.
Key Takeaways
- 1Article 9 SFDR products must disclose which environmental objectives they contribute to and the proportion of taxonomy-aligned investments
- 2Article 8 products must disclose taxonomy alignment percentage and include a DNSH disclaimer for the non-aligned portion
- 3Article 6 products must state that they do not consider the EU taxonomy criteria
- 4Even highly sustainable funds will have significant non-eligible holdings because the taxonomy does not yet cover all economic activities