The EU's Sustainable Finance Disclosure Regulation (SFDR), which aims to tackle misleading claims from managers over their sustainability efforts, is gradually being rolled out and from January required more detailed information to back them up.

Ahead of that, European Supervisory Authorities (ESAs) had sought to clarify how to apply elements of the regulation. Yet many managers said questions remained, particularly around what qualified as a 'sustainable investment'.

As a result, many opted to reclassify their funds as 'Article 8', which carries with it less onerous reporting requirements, from the highest level, Article 9.

Overall, 419 products saw their status change in the fourth quarter, of which 307 were cut from Article 9 to Article 8, some 40% of the 'dark green' category, continuing a trend begun earlier in the year, Morningstar said.

"Almost two years after SFDR came into force, the landscape of funds marketed as green in the EU is going through some radical changes," Hortense Bioy, Global Director of Sustainability Research, Morningstar said.

"We expect the recent wave of Article 9 fund downgrades to continue, raising questions about what will remain and how useful that category will be."

(Reporting by Virginia Furness; Editing by Simon Jessop and Mark Potter)

By Virginia Furness and Simon Jessop