France: AMF proposes minimum criteria for Article 8 and 9 financial products

The Autorité des Marchés Financiers (AMF) published on 13 February 2023 a position paper setting out proposals to the EU Commission on the introduction of minimum environmental requirements to be met by financial products in order to be classified as Article 8 or Article 9 under the Sustainable Finance Disclosure Regulation (SFDR). 

The publication follows a statement made on 9 February by Mrs Barbat-Layani, the new Chair of the AMF (in charge since January 2023), to EU Commissioner Mrs McGuiness, in which she said that “the AMF wants to make a constructive contribution to a new phase of European regulation on sustainable finance”.

Findings

The AMF recognises that the SFDR was designed as an ESG transparency regime and the use of the SFDR classification by Financial Market Participants (FMPs) may be misinterpreted by investors as it is currently not a label. According to the AMF, this misinterpretation would have created a gap between the expectations expressed by investors and the reality of the practices of the FMPs and would have fueled “greenwashing".

Proposals

Key proposals - To address these issues, the AMF has suggested a number of measures (with the last three criteria constituting the main proposal):

• setting up minimum environmental criteria for the classification of products as Article 9 or Article 8;
• clarifying the “vague” definition of "sustainable investment" with a new definition built on objective requirements;
• a minimum proportion of Taxonomy-aligned investments for Article 9 funds (for Article 8, only reporting to increase transparency);
• binding ESG approach in the investment decision-making process; and 
• exclusion of fossil fuel activities that are not aligned with the Taxonomy from Article 9 funds (for Article 8, such investments would be possible provided that these activities are engaged in an orderly transition).

Other possible criteria options - The AMF has also proposed that policymakers may consider:

• transparency and monitoring of engagement policies;
• introducing a minimum proportion of Article 9 and 8 products’ underlying assets invested in “transition assets” (the regulator is introducing a proposed definition); and
• requirement for manufacturers to report on PAIs.

Timing

The AMF acknowledges that for certain criteria such proposed routes will require several years of legislative design (notably the definition of “transition assets”, also in light of the future EU Taxonomy).

These proposals aim to initiate discussions on the establishment of minimum standards in the context of the review of SFDR. Indeed, the timing of the AMF’s position paper has been well chosen: the EU Commission was at the time considering whether the SFDR regime should be reviewed. In the meantime, the European Supervisory Authorities (ESAs) published their consultation on the SFDR review (in April 2023) and the EU Commission published its consultation on the implementation of the SFDR (in September 2023). For more information on both of these consultations, see our previous client publications here and here. 

European political stage: EU, France & UK

In its consultation, the EU Commission aims to address the lack of clarity in the use of the SFDR as a disclosure regime, and potential envisaged options would be: (i) shifting to a labeling framework; or (ii) maintaining and clarifying the disclosures regime including additional safeguards.

In this respect, the AMF is advocating for a labeling regime and is sending a political message to the other national and EU regulators and to the industry, investors and NGOs. No need to remind readers of the recent context (claims brought by NGOs in France, recent investigations published by a consortium of journalists in Le Monde, a Morningstar report on the downgrading of funds from Article 9 to Article 8, etc.).

A parallel may be made with the UK SDR regime which was under consultation until the end of January 2023 (see our previous client publication). Under the proposed UK labelling regime, three categories of sustainable labelling are envisaged: sustainable focus, sustainable improvers, and sustainable impact.

In addition to reducing the risk of fragmentation within the EU, could this also open the door to a rapprochement/reconciliation with the UK?

AMF ESG Doctrine

The AMF’s position is not surprising as the regulator has always considered that the SFDR includes ambiguous or non-defined terms and leaves too much room for interpretation by asset managers. 

Hence, the AMF had elaborated its own doctrine in relation to marketing communications back in 2020 (see the AMF Position-Recommendation 2020-03) and imposed minimum requirements in terms of non-financial approaches.