On February 10, 2023, the French Financial Markets Authority (Autorité des marchés financiers or AMF) published a position paper (1) proposing minimum criteria that a financial product should meet in order to be classified as “Article 9” or “Article 8” under the European Sustainable Finance Disclosure Regulation (SFDR). This position is a major step forward in the definition of “sustainability” as the AMF is now calling for fossil fuels to be excluded from sustainable funds.
A step forward in the battle against greenwashing
The SFDR regulation, which comes into effect in 2021, aims to regulate the disclosure of information by financial actors and their funds, especially for funds with ESG claims. Because the SFDR does not include minimum requirements for financial products to qualify as sustainable, its implementation has led to greenwashing. When a consortium of media outlets published an investigation revealing the presence of highly polluting companies in funds declared sustainable by European asset managers in November – including the French companies Amundi, AXA IM and BNP Paribas (2) – Reclaim Finance called on regulators to act – including the AMF – to put an end to these practices. The European Securities and Markets Authority (ESMA) had also called on national regulators to conduct their own audits to prevent greenwashing (3).
By calling for the exclusion of fossil fuels from so-called “sustainable” funds, this position represents an important step forward in the battle against greenwashing by financial players and makes the AMF the first national regulator in Europe to take such an explicit public position.
Exclusion proposals to be clarified
However, the AMF’s position leaves a number of grey areas that need to be resolved in order to eliminate any risk of greenwashing.
For Article 9 funds (i.e. funds that have a sustainable investment objective), the AMF proposes to exclude all activities related to fossil infrastructure, with the exception of a very small number of gas power plants and transport infrastructure. Since exclusions are made at the level of companies, not activities, it is necessary to clarify whether this exclusion really concerns all companies that have fossil fuel activities that are not aligned with the European Union’s taxonomy. The vagueness of the current wording leaves room for a risk: if this point is not clarified by the AMF, many companies could fall through the cracks, particularly if the exclusion applies only to certain subsidiaries and not to the parent company.
For Article 8 funds (i.e. funds that promote ESG), the AMF proposes lighter exclusions. Fossil fuel companies could be included provided they have a “convincing transition plan”, which should be accompanied by a plan to close down fossil fuel assets. The relevance of this proposal will depend on the mandatory information that must be included. Indeed, these plans will have to be sufficiently precise to allow their evaluation and exclude the development of new fossil fuel production or transport infrastructures. In particular, they should include indicators on the breakdown of the company’s CAPEX and on the decline in fossil fuel production in the short term, which is a sine qua non condition for committing to the closure of assets.
Finally, the AMF also recommends that detailed information on the commitment made at the fund level be published. Here again, the usefulness of such a measure in the fight against greenwashing will depend on the relevance of the information requested from financial players. At the very least, the publication of votes and specific requests made to portfolio companies would reduce the risk of greenwashing.
Although the AMF’s proposal leaves some grey areas that will have to be removed in order to avoid any greenwashing, this proposal is a clear step forward. It is now up to the European Commission to follow through on its responsibilities to ensure that companies developing new fossil fuel projects cannot be included in funds sold to investors as “sustainable”.