Providers of sustainable and ESG investment products in Europe should be required to follow specific ESG approaches, and provide products that meet certain environmental criteria, according to a series of proposals released today by France’s financial market regulator, The Autorité des marchés financiers (AMF).
The AMF’s proposals aim to add more stringent requirements for providers of Article 8 and Article 9 funds under the EU’s Sustainable Finance Disclosure Regulation (SFDR), which came into effect in January 2023.
The EU SFDR forms part of the EU’s Action Plan on financing sustainable growth. The regulation establishes harmonized rules for financial market participants including investors and advisers on transparency regarding the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability‐related information with respect to financial products.
The regulation includes classification levels for sustainability-focused investment funds, including ‘Article 8’ funds that “promote environmental or social characteristics or a combination of those characteristics,” and the more stringent ‘Article 9’ funds, “which have sustainable investment as their objective.”
In a new position paper released by the AMF, however, the regulator asserts that the SFDR has “created a gap between the reasonable expectations expressed by investors and the reality of the practices,” and fueled “greenwashing,” by not setting minimum environmental impact requirements for Article 8 and 9 financial products, and by not sufficiently defining the concept of “sustainable investment.”
In order to address these issues, the AMF’s new proposals include the establishment of minimum environmental criteria for Article 8 and 9 products – more stringent for Article 9 – with compliance subject to national supervision, outlining a minimum proportion of Article 9 funds’ portfolio assets aligned with the EU Taxonomy which should increase over time, and a requirement for financial market participants managing Article 8 and 9 funds to adopt a binding and acceptable ESG approach in the investment process.
The AMF proposals also would require Article 9 funds to exclude investments in fossil fuel activities not aligned with the EU Taxonomy, along with strict conditions for these investments for Article 8 funds.
In addition to the proposals, the position paper also included suggested consideration for policymakers, including required engagement policies for Article 8 and 9 product providers, reporting on principle adverse impacts (PAIs) of investment decisions, and the proportion of assets that may consist of “transition assets.”
Discussing the proposals last week with EU Commissioner McGuinness, Marie-Anne Barbat-Layani, Chair of the AMF, said:
“The AMF wants to make a constructive contribution to a new phase of European regulation on sustainable finance.”
Click here to access the AMF position paper and proposals.