French financial regulator AMF is pushing for Europe to have tougher standards for the highest-rated ESG financial products to help investors and curb greenwashing.
In a position paper released Monday, The Autorité des marches financiers, AMF, said that 2019's Sustainable Finance Disclosure Regulation that went into effect this January, does not set adequate minimum expectations that would help investors assess Article 8 and Article 9 funds, the most stringent SFDR categories, and curb greenwashing.
The proposed changes would contribute to "a new phase of European regulation on sustainable finance," Marie-Anne Barbat-Layani, AMF chairwoman, said in a news release.
The AMF paper said that by only requiring financial actors to disclose information about their sustainability claims and practices and offering a vague definition of sustainable investment, the result has been "very different understandings of what sustainability is."
"Thus it appears that SFDR has created a gap between the reasonable expectations expressed by investors and the reality of the practices, and fuelled the greenwashing," said the paper, which followed informal consultations with European financial market participants.
To improve ESG products, the AMF proposes that providers of Article 8 and 9 funds should have to follow minimum standards, have a minimum amount of underlying assets aligned with the EU green taxonomy and adopt a binding ESG approach.
Article 8 and 9 funds should also exclude fossil fuel investments or only allow those with plans for transitioning away from fossil fuels, the AMF proposed in its core recommendations.
The paper also recommends that European policymakers set minimum standards for engagement and transition planning by Article 8 and 9 fund managers. It calls for them to adopt engagement policies and practices related to those funds and report on principal adverse impacts of their investment decisions at the product level, "to foster comparability between such products," it said. The agency also called for a minimum amount of assets dedicated to energy transition in underlying assets.
Some of the ideas will take years of legislative action, the paper acknowledged.