The French Financial Markets Authority (AMF) has called on the European Union (EU) to tighten rules on labeling sustainable investment funds to prevent greenwashing, as reported by Reuters on February 13. Under the EU’s Sustainable Finance Disclosure Regulation (SFDR) effective from January 2023, sustainable funds that “promote environmental or social characteristics or a combination of those characteristics,” are classified as Article 8, and those “have sustainable investment as their objective” are classified as the more stringent Article 9. According to an AMF statement, the SFDR has not set minimum environmental impact requirements for Article 8 and 9 financial products, nor has it defined the concept of sustainable investment clearly, thus fueling greenwashing.
AMF pointed out that the use of existing SFDR could mislead investors of sustainable funds into thinking they are supporting a more environmentally friendly European economy. In the fourth quarter of 2022, amid a trend of tightened regulation on greenwashing in Europe, asset managers downgraded funds worth a total of EUR175bn (USD190bn) from Article 9 to Article 8 due to uncertainty over the criteria for sustainable investment. To address this ambiguity and to meet the expectations of investors, the AMF has called for new measures, including a minimum percentage of sustainable investments in the portfolio assets of Article 9 funds, with an increase in the figure over time. Last November, the European Securities and Markets Authority (ESMA) proposed stricter conditions on using ‘ESG’ and ‘sustainable’ in a fund’s title, with the finalized guidance to be released in the second or third quarter of this year.