AMF Calls for Review to Include Environmental Criteria
The AMF says that for a financial product to be considered under Article 8 or Article 9 of the Sustainable Finance Disclosure Regulation (SFDR), it should meet the minimum environmental standards that the AMF has proposed for European law.
The EU co-legislators and Commission created the SFDR as a transparency framework for financial entities and products, focusing on Environmental, Social, and Governance (ESG) factors. As a result, financial market participants are mandated to disclose details regarding their sustainability communications and practices.
SFDR does not establish any minimum standards or define sustainable investment. Therefore, the current categorisation under Article 8 and Article 9 is not intended to evaluate the level or degree of the manager's dedication to sustainability.
The current classification system under Article 8 and Article 9 may be misconstrued by savers as an assurance that they are contributing to a more sustainable European economy. To stop this confusion and better meet the expectations of savers, it might be necessary to set up new measures.
One possible solution could be for the European Commission to propose minimum criteria for the environmental impact of financial products classified under Article 8 or Article 9. This does not necessarily mean scaling back the overall ambition of the transparency regime, which encompasses all ESG factors. In light of the European sustainable finance agenda, this could be an initial step focused on the environmental dimension.
The AMF suggests that European law should quickly adopt the following recommendations, drawing from existing market practices and regulations to supplement the current regulatory framework:
Establish minimum environmental criteria for the classification of Article 9 and Article 8 products, with national supervision ensuring compliance. Article 9 criteria should be more rigorous than Article 8 criteria.
Article 9 funds should contain a minimum percentage of portfolio assets invested in taxonomy-aligned investments, with the percentage increasing as the European economy moves towards sustainability.
Financial market participants managing Article 8 and 9 funds should adopt a binding ESG approach in their investment decision-making process. The EU should identify a set of acceptable ESG approaches for financial players to implement based on minimum criteria.
Article 9 funds should not invest in fossil fuel activities that do not align with the European Taxonomy. Investment in these activities is possible for Article 8 products if they meet strict conditions ensuring an orderly transition.
Source: AMF
