The Dutch Authority for the Financial Markets (AFM) has released a position paper outlining proposed revisions to the EU’s Sustainable Finance Disclosure Regulation (SFDR), according to ESG Today on November 7. The AFM suggests eliminating the SFDR’s Article 8 and 9 classification categories, which currently categorize all sustainable funds as products promoting environmental or social characteristics or a combination of both (Article 8) and products with sustainable investment as their objective (Article 9). Instead, the AFM advocates for a new sustainable investment labeling system that categorizes sustainable investment products into three distinct groups: transition products, sustainable products, and sustainable impact products. Furthermore, the AFM proposes that all financial products, even those lacking sustainability features, should provide a minimum set of disclosures on sustainability impact. This move aims to enable investors to assess the negative impact of their investments.

The AFM’s proposal coincides with the ongoing EU review of the SFDR framework. Introduced by the EU in March 2021, SFDR aimed to enhance transparency in the sustainable investment market. However, the vague definitions of SFDR product categories have led to confusion in the asset management industry. In particular, the ambiguous definition of Article 8 funds has resulted in significant divergence in the types of funds labeled as Article 8, increasing the risk of greenwashing. In February 2023, France’s markets watchdog AMF also called for amendments to the SFDR, highlighting the regulation’s lack of minimum environmental impact requirements for Article 8 and 9 financial products and the absence of a clear definition of sustainable investment, contributing to greenwashing concerns.

Sources:

https://www.esgtoday.com/dutch-regulator-proposes-scrapping-article-8-and-9-categories-for-investment-product-sustainability-labels/

https://fintech.global/2023/11/08/afm-advocates-for-revamp-of-eus-sustainable-investment-labels/

https://www.simmons-simmons.com/en/publications/clompi9lu0204udeob8rxpx9o/dutch-regulator-afm-publishes-position-paper-on-improving-sfdr

https://www.etfstream.com/articles/sfdr-vague-article-8-definition-increases-risk-of-greenwashing

https://www.reuters.com/business/sustainable-business/france-says-eu-rules-esg-funds-need-tightening-cut-greenwashing-2023-02-13/