One in four (25%) of all article 8 funds remain at risk of greenwashing, according to a new report, which suggests that the risk is stabilising.
Article 8 funds are those considered to be promoting environmental and social objectives under SFDR rules.
The number of article 9 funds (those with a primary sustainable investment objective) that have greenwashing risk stands at 5%, according to the latest 2026 ESG & Sustainability Barometer from data provider MainStreet Partners.
The fifth edition of the firm’s annual review of sustainability trends across the European and UK fund universe showed that around 25% of article 8 funds scored below MainStreet’s 3.0 (out of 5.0) threshold for ‘ESG‑Assessed’.
Some 30% of article 9 funds scored below the 4.0 ‘Sustainability‑Assessed’ threshold but, only approximately 5% of article 9 funds are rated below a 3.5.
Sophie Meatyard, head of fund research at MainStreet Partners, said: “While greenwashing risk is stabilising, a meaningful proportion of funds still fall short of the standards investors may reasonably expect. With 5% of article 9 funds rated below 3.5, many of these strategies demonstrate positive characteristics, but may require stronger implementation, clearer sustainability objectives, or more robust KPIs.”
The report also concluded that asset manager scores continued a multi‑year decline with rising standards and regional divergences in ESG expectations collectively pushing average asset manager ratings lower across all fund categories.
Environmental strategies continue to dominate the market, with more than €75bn in AUM across 110 funds, compared to just €17bn across 38 social funds. Although social funds average a strong 4.3/5.0 rating, comparable to environmental funds, the lack of a social taxonomy and more qualitative data inputs contribute to their underrepresentation.
Looking ahead the report said new regulation will reshape the fund universe. It said SFDR 2.0 introduces a stricter three‑category system (ESG Basics, Transition, Sustainable). Based on MainStreet’s analysis, 67% of existing funds would fall under ESG Basics, 19% under Transition, and only 14% under Sustainable, demonstrating the higher bar for the latter category.
The report also identified how ESMA Naming Guidelines and the FCA’s SDR are influencing fund behaviour with the prevalence of naming‑related penalties falling from 7% to 4.6%, reflecting improved alignment between fund names and sustainability commitments.
Sophie Meatyard added: “Expectations for a calmer regulatory environment in 2025 did not materialise. Instead, ESMA Naming Guidelines, the UK’s SDR regime, and the announcement of SFDR 2.0 collectively sharpened scrutiny and raised the bar for transparency across the market.”
The 2026 ESG & Sustainability Barometer includes ESG and Sustainability due diligence on more than 1,600 funds, with ESG risk assessments on a further 9,000+ funds, managed by nearly 500 asset managers, the firm said.