Mathilde Dufour, head of ESG research at Mirova, defended the EU's track record with sustainability fund reporting rules and called on authorities to be cautious when pursuing reforms to avoid a market setback.
Mr Dufour's intervention comes amid broader efforts by the European Commission to reform the Sustainable Finance Disclosure Regulation (SFDR), following concerns about the complexity of the system and its effectiveness.
The committee primarily wants to change the way SFDR is used. Although developed as a disclosure-only framework, investors overwhelmingly use its disclosure categories as de facto labels for their ESG funds.
In September, the Commission announced plans to evolve the law into what the market calls SFDR 2.0, which includes two proposed pathways.
Using the current Article 8 and Article 9 categories as the basis for new standards to define products in scope and develop new regulated ESG fund labels that focus on themes such as the green transition It is also possible to do so.
The second option would abolish the Section 8 and 9 categories and is reminiscent of the fund labeling system introduced by the UK's Financial Conduct Authority late last year.
as R.I. According to a report last week, the European Commission ordered advisers to the EU Platform on Sustainable Finance to consider product categories and labels, and told the group not to limit itself to the two options outlined in the consultation.
Officials also said R.I. Efforts to potentially develop new labels have proven difficult for the committee, which said there was a sense that the consultation had “opened a can of worms” for something that could be difficult to achieve.
back to square one
Dufour said starting over would mean ignoring the hard-won advances made through SFDR, especially transparency.
He added: “Our view is that the definition used could be a little more stringent, but as this is the first time a regulator has attempted to develop a standardized definition of sustainable investing, SFDR is a big step in the right direction.” ”
Until then, she said, it was a “free-for-all” for investors to use ESG scores and data in “all sorts of questionable ways.”
“That is what we mean when we say that this regulation has so far achieved its main goal of transparency. We are asking investors to state what their goals are as a top priority, and we believe this will provide important clarity for our core ESG and dark green investment products.”
The fact that a “small portion of the market” consists of Chapter 9 funds, the most ambitious tier of ESG products, is evidence that SFDR disclosures are at least broadly in line with market reality. said Dufour.
Milova is more committed to keeping SFDR in its current form than most of its competitors.
In 2022, French asset managers moved to readjust the definition of sustainable investments to align with SFDR. SFDR considers sustainable investments to be those that actively contribute to environmental and sustainability goals, do not compromise other E&S goals, and are subject to good governance. The entire range of funds allowed under the Article 9 category of the SFDR.
Dufour said: “As a company, we only invest in what we identify as ‘sustainable investments’. This means that all our funds are Article 9 classified. We believe it is important to have a single definition of , and therefore used the EU's SFDR as an anchor and reference point for our strategy.
“If regulations evolve, we will need to consider the implications internally, but we believe there is a risk of a market setback if that happens.”
He said that when making regulatory changes, for example around fossil fuel exposures within ESG funds, the Commission should focus on setting minimum standards, but avoid overly prescriptive rules that could inhibit market innovation. I suggested that.
Adopting UK-style labeling rules, he added, could leave authorities “facing the same difficulties of trying to develop a definition that is both scientifically accurate and investable.”
