The Autorité des Marchés Financiers (AMF), the French financial markets authority, is proposing a targeted review to the European Commission’s Sustainable Finance Disclosure Regulation (SFDR).

AMF is proposing the introduction of minimum environmental requirements in European law that must be met by financial products in order to be classified as Article 8 or Article 9 under the SFDR.

Following a discussion about AMF’s proposals with EU commissioner Mairead 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.”   

As it stands, the SFDR does not impose minimum requirements and does not define the concept of sustainable 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 regulator stressed.

“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,” it said.

“It therefore seems necessary to take new steps in order to avoid this ambiguity and to better meet the expectations of savers,” it continued.

By introducing minimum criteria concerning environmental impacts for financial products categorised under Article 8 or Article 9 it does not necessarily mean a reversal of the broader ambition of the transparency regime which covers all of the ESG criteria, AMF said.

“As a first step, and given the European sustainable finance agenda, it could be targeted at the environmental dimension,” it added.

Drawing on existing market practices and regulations, the AMF has made the following recommendations, which could be implemented quickly in European law and would be a useful addition to the current regulatory framework:

  • Minimum environmental criteria should be established for the classification of products as Article 9 or Article 8. Compliance with these criteria would be subject to national supervision. The criteria for Article 9 should continue to be more stringent than those for Article 8.
  • A minimum proportion of portfolio assets for Article 9 funds should consist of investments aligned with the taxonomy. This percentage could increase over time as the European economy advances towards sustainability.
  • Financial market participants that manage Article 8 and 9 funds should adopt a binding ESG approach in their investment decision-making process. The EU framework for minimum criteria should identify a set of acceptable ESG approaches that can be implemented by financial players.
  • Article 9 funds should exclude investments in fossil fuel activities that are not aligned with the European taxonomy. Investment in such activities would be possible for Article 8 products provided that they meet strict conditions that ensure that these activities are engaged in an orderly transition. 

The regulator has also proposed to introduce the concept of transition and engagement policies and has identified possible avenues for a quantitative definition of assets in transition.

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