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

Recital 21 to Regulation (EU) 2019/2088 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, they are considered to fall under Article 8 of Regulation (EU) 2019/2088. Article 8 and Article 9 of Regulation (EU) 2019/2088 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 (hereinafter ‘financial products that promote environmental of social characteristics’), 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. 7 Original version published on 14 July 2021 can be found here: https://www.esma.europa.eu/sites/default/files/library/sfdr_ec_qa_1313978.pdf Article 8 of Regulation (EU) 2019/2088 lays down transparency rules for financial products that have a sustainability-related ambition lower than the ambition of financial products subject to Article 9. Where a product has an environmental objective and does not meet the do not significant harm as referred to in Article 2(17) of Regulation (EU) 2019/2088, qualifies as Article 8 product. Like Article 9 of Regulation (EU) 2019/2088, Article 8 of that Regulation addresses a potential issue of greenwashing by financial products, i.e. conveying a false impression, or providing misleading information about how a financial product is performing in terms of ESG sustainability. Environmental or social characteristics Article 8 of Regulation (EU) 2019/2088 remains neutral in terms of design of financial products. It does not prescribe certain elements such as the composition of investments or minimum investment thresholds, the eligible investment targets, and neither does it determine eligible investing styles, investment tools, strategies or methodologies to be employed. Therefore, nothing prevents financial products subject to Article 8 of Regulation (EU) 2019/2088 not to continue applying various current market practises, tools and strategies and a combination thereof such as screening, exclusion strategies, best-in-class/universe, thematic investing, certain redistribution of profits or fees. Certainly, many of those market practises, tools and strategies are also available to financial products subject to Article 9 of Regulation (EU) 2019/2088, provided the investments qualify as ‘sustainable investments’, as defined in point 17 of Article 2 of Regulation (EU) 2019/2088. Financial products that fall under Article 8 may pursue reduction of negative externalities caused by the underlying investments, such as principal adverse impacts on sustainability factors referred to in point (a) of Article 7(1) of Regulation (EU) 2019/2088. In addition, as confirmed by Article 6 of Regulation 2020/852, nothing prohibits financial products that fall under Article 8 to be, in part, invested in ‘sustainable investments’ as defined in point 17 Article 2 of Regulation (EU) 2019/2088. On the other hand, integration per se of sustainability risks, as defined by point 22 of Article 2 of Regulation (EU) 2019/2088, is not sufficient for Article 8 to apply. Promotion of environmental or social characteristics Article 8 means that where a financial product complies with certain environmental, social or sustainability requirements or restrictions laid down by law, including international conventions, or voluntary codes, and these characteristics are “promoted” in the investment policy the financial product is subject to Article 8 of Regulation (EU) 2019/2088. The term ‘promotion’ within the meaning of Article 8 of Regulation (EU) 2019/2088 encompasses, by way of example, direct or indirect claims, information, reporting, disclosures as well as an impression that investments pursued by the given financial product also consider environmental or social characteristics in terms of investment policies, goals, targets or objectives or a general ambition in, but not limited to, pre-contractual and periodic documents or marketing communications, advertisements, product categorisation, description of investment strategies or asset allocation, information on the adherence to sustainability-related financial product standards and labels, use of product names or designations, memoranda or issuing documents, factsheets, specifications about conditions for automatic enrolment or compliance with sectoral exclusions or statutory requirements regardless of the form used, such as on paper, durable media, by means of websites, or electronic data rooms. Moreover, financial products in their pre-contractual disclosures must refer to those elements which relate to their environmental and/or social characteristics binding during the whole holding period and which are used for the description of the extent to which environmental or social characteristics are met, as referred to in point (a) of Article 11(1) of Regulation (EU) 2019/2088.