France says EU rules on ESG funds need tightening to cut greenwashing

LONDON, Feb 13 (Reuters) – European Union rules for labelling sustainable investment funds need tightening to avoid ‘greenwashing’ investors who want to help cut carbon emissions, France’s markets watchdog AMF said as concerns over applying ESG regulation mount.

The EU’s sustainable finance disclosure regulation (SFDR) helps asset managers classify funds as sustainable, but the AMF said there should be a “targeted review” by Brussels given it contains no minimum requirements, or definition of what is a sustainable investment.

Since March 2021, asset managers have classified ‘sustainable’ funds as either Article 8 or Article 9, with the latter the highest level of sustainability. Some 55% of all EU-regulated mutual funds come under these two categories.

“We note, however, that the use of this categorisation by financial market participants may be misinterpreted by savers as a guarantee that they are participating in the financing of a more sustainable European economy,” the AMF said in a statement.

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In the fourth quarter of last year, managers downgraded funds holding a total of 175 billion euros ($186.92 billion) of assets from Article 9 to Article 8 due to uncertainty over what qualifies as a sustainable investment.

“It therefore seems necessary to take new steps in order to avoid this ambiguity and to better meet the expectations of savers,” the AMF said.

The minimum percentage figure for sustainable investments in Article 9 products should “evolve upwards” in predefined steps as the EU economy becomes greener, it said.

The EU’s executive European Commission has acknowledged that making its new ESG rules “usable” in practice is now a priority but says the emphasis should be on giving more guidance rather than changing the underlying rules.

The EU’s securities watchdog ESMA last November proposed tougher conditions on using ‘ESG’ and ‘sustainable‘ in a fund’s title, with finalised guidance due in the second or third quarter of this year.

The AMF said Article 9 funds should exclude investments in fossil fuel activities which are not aligned with the EU’s “taxonomy” or guide to green investment.

“Investment in such activities would be possible for Article 8 products provided that they meet strict conditions that ensure that these activities are engaged in an orderly transition,” the AMF said.

($1 = 0.9362 euros)

Reporting by Huw Jones; Editing by Kirsten Donovan

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