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57% of managers have Article 6 funds - most will upgrade within next year to Article 8

NAREIM Sustainability Meeting (virtual): Key takeaways

May 25, 2023

More than half of real estate investment managers with US core funds describe their vehicles as Article 6 under Europe’s new environmental disclosure rules – with most expected to increase their disclosure to Article 8 in the next year.

During NAREIM’s virtual Sustainability meeting yesterday, members discussed how they were currently labeling their vehicles under the European Union’s SFDR rules, with 57% of managers saying their US core real estate funds were being classed as Article 6 compared to 13% for Article 8.

Almost one-third of managers (30%) didn’t know what category to disclose their fund as or were still learning the SFDR rules.

  • Definition: According to the Sustainable Finance Disclosure Regulation (SFDR), Article 6 funds relate to funds that take ESG into consideration only from a risk management perspective while Article 8 relates to vehicles that consider some environmental or social topics in the investment decision-making process, in a binding manner.

However, when asked if members planned to change the level of their fund in the future, 50% of managers agreed, with almost eight out of 10 of those respondents saying they planned to move to Article 8 or Article 9 status within the next 12 months.


  • 57% of managers label US core real estate fund as Article 6 vs 13% as Article 8

  • 50% of managers expect to change their disclosure level in the near future

  • 46% of managers changing their disclosure said they would upgrade to Article 8 or 9 within 6 months

  • 31% of managers changing their disclosure said they would move to Article 8 or 9 within 8-12 months

The virtual meeting also involved an open Q&A among NAREIM members, where the following best practices were discussed:

Article 8: 

Growing number of vehicles are moving to disclose as Article 8, including members with US and European opportunistic funds. Most Article 8 disclosures are concentrated on European vehicles, owing to increasing pressure and questions from investors.

The lift to move to Article 8: 

Members discussed the reluctance of Portfolio Management teams to go through reclassifying as Article 8 because the process was too bureaucratic and a “big lift”. The rules currently were “over-lawyered and complicated” and desperately need to be streamlined.

Article 9: 

There are very few real estate funds disclosing themselves as Article 9 currently (which requires a vehicle to invest 100% or substantially all of its assets sustainably). Most are in Europe and are on the social housing side of the industry.

LPs and consultants: 

One member said their European consultants and investors were telling the firm to expect an acceleration of their need for Article 8 and 9 disclosures, pushing the manager to get ahead of the early.

The US doesn’t have EPC (energy performance certificate) ratings: 

One area that gets lost in translation under SFDR is the need for EPC ratings. These don’t exist in the US, and members discussed whether EnergyStar Portfolio Manager was a good enough proxy. 

“It’s been very difficult and hard to translate,” said one member, admitting they had decided to wait for better guidance. Another was creating their own benchmark and scorecard owing to the problems around EPCs. “We’d love the industry to get on the same page so there is something for us all to use. So we’re all on the same page,” said one member.

Anti-ESG backlash:

Despite headlines on growing anti-ESG sentiment, members said it wasn’t translating into pension funds and LPs demanding changes to how a fund operates or how it invests. 

“Investors are asking more and more questions in DDQs, and yes there’s a lot of noise but no actions,” one member explained. Another member said of a Southern state pension plan: “There is no correlation between what the investment team on the ground is saying versus what happens at the political level.”

You have to pick a lane:

That was the argument from one NAREIM member who said real estate investment managers would simply have to pick a lane in terms of their ESG commitments. “You cannot be all things to all people, you will have to pick a lane eventually.”

  • To download the poll results, additional reading on EU and ESMA guidance and the meeting attendee list, click here. Note, this is only open to NAREIM members.

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