The French Financial Market Authority (Autorité des marchés financiers, AMF) has issued an extensive proposal for reducing greenwashing in the sustainable finance disclosure regulation (SFDR). This includes an explicit prohibition on fossil fuel activities in some funds and in others limiting fossil fuel activities to those engaged in an orderly transition.
The AMF’s proposal would provide minimum environmental standards for investment funds under articles 8 and 9 of the SFDR. Article 8 funds provide disclosures for those marketed as ESG, while article 9 funds provide for disclosures about the characteristics of investments marketed as sustainable.
The fossil fuel prohibition would apply to article 9 funds, and the proposal would provide that a minimum proportion of portfolio assets must consist of investments aligned with the EU’s taxonomy for sustainable activities. In addition, managers of funds under both articles must adopt a binding ESG approach in their investment decision-making process, as well as other changes. The AMF’s proposal in total contains eight recommendations, including five it considers to be “core recommendations”.
The SFDR is an EU-wide regulation designed to improve transparency in the market for sustainable investment products, and has required investment advisors, fund managers, and other financial institutions to provide prospective investors with information on funds’ sustainability and practices since 2021. Its primary objectives are to facilitate sustainable investment opportunities and combat greenwashing.
However, the AMF is concerned that, because the SFDR does not impose minimum requirements for products sold, there is “a gap between the reasonable expectations expressed by investors and the reality of the practices”. The AMF also says that SFDR has “fuelled” greenwashing activities.
The AMF’s concern echoes that of climate advocates who have been concerned about the SFDR. In a 2022 comment, six environmental organisations argued that the SFDR allows products to be defined as “sustainable” even if “they do not match a scientific or even common or rational understanding of sustainability”. According to the groups, this greenwashing “harms not only the environment but also deceives consumers who may have relinquished a part of their returns to promote sustainability in their financial choices”.
This page was last updated March 1, 2023
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