The Autorité des Marchés Financiers has called for a review of the EU Sustainable Finance Disclosure Regulation.
The Autorité des Marchés Financiers, the French financial market regulator, has said it wants to introduce minimum environmental standards for classifying investment funds as either Article 8 or Article 9 under the EU Sustainable Finance Disclosure Regulation.
Typically, Article 8 funds promote environmental or social characteristics, while Article 9 products carry sustainable investment as an explicit objective.
In a note on February 13, the AMF observed that the SFDR does not set minimum requirements, nor does it define responsible investment.
“Consequently, the current Article 8 and Article 9 classification does not aim to assess the nature or extent of the manager’s commitment to sustainability,” the AMF said.
“We note, however, that the use of this categorisation by financial market participants may be misinterpreted by savers as a guarantee that they are participating in the financing of a more sustainable European economy.”
The AMF suggested establishing minimum environmental criteria for Article 8 and 9 funds, which would be supervised at a national level. A minimum percentage of Article 9 assets should be aligned with the EU taxonomy, a proportion that the AMF said could increase over time.
The EU’s sustainable finance framework should set “acceptable ESG approaches” that would be adopted by market participants in their investment decision-making process, it continued.
Article 9 funds, meanwhile, would exclude fossil fuel investments that are not aligned with the taxonomy. The AMF said that Article 8 funds could continue to invest in fossil fuel activities “provided that they meet strict conditions that ensure that these activities are engaged in an orderly transition”.
Ashurst regulatory partner Hubert Blanc-Jouvan told Sustainable Views: “Instinctively, I would have thought there is a need for some stability (rather than reopening the debate to create new obligations) in order to allow regulated firms to implement and comply with all the new ESG requirements.
“But I can understand the concern from the French regulator, and I believe it is true to observe that for the public, the sole fact of being a product classified as Article 8 or 9 under SFDR is generally interpreted as a signal that the product does comply with certain ESG criteria.”
Aleksandra Palinska, European Sustainable Investment Forum executive director, agreed that there is a need for minimum criteria for products categorised as either Article 8 or 9.
“We should probably also consider creating a category that would better reflect impact transition or investments,” she told Sustainable Views. “Currently neither category is properly catering for the specificities of impact investments”.
Palinska added that using EU taxonomy alignment as an environmental criterion made overall sense, particularly if the starting level “is realistic and then adjusted over time”.
“It may be useful to consider allowing using alternative taxonomies or standards as long as they are reliable and science-based, especially in case of investments outside the EU,” she said.