Is the <scp>EU</scp> Sustainable Finance Disclosure Regulation ( <scp>SFDR</scp> ) an Opportunity or a Boundary for European Thematic Mutual Funds? A Difference‐in‐Differences Approach

ABSTRACT The EU Sustainable Finance Disclosure Regulation (SFDR) introduces an ESG‐product classification (Article 8 and 9) to harmonize sustainability‐disclosure standards. However, the SFDR does not specify the sustainability practices of these products. This may produce ambiguity for thematic funds with ESG‐related topics because these should also be divided into ESG (Article 8/9) and non‐ESG funds. Hence, we examine whether European Article‐8 and Article‐9 thematic funds present distinct financial and sustainability practices than non‐ESG funds with a difference‐in‐differences methodology. The results show that the broad product definitions of the SFDR lead to fuzziness, finding no performance differences between Article‐8/9 funds and non‐ESG funds after the SFDR. Furthermore, Article 8 and 9 funds do not receive different flows than non‐ESG funds since the SFDR, showing that investors do not distinguish between Article‐8/9 and non‐ESG funds. Finally, Article 8 and 9 funds present uneven and limited progress toward the SDGs, consistent with category‐stretching dynamics.