Resolutely sustainable finance: this is what the European Commission is calling for as part of the review of its action plan for sustainable finance, a final copy of which is expected next December.
The figures are there: responsible investment is growing strongly, with a significant increase in the number of sustainable funds between 2019 and 2020, a strengthening of the labeling of funds and European labels that innovate to better grasp the European SFDR (Sustainable Finance Disclosure Regulation), also known as the Disclosure Regulation, published in November 2019. This regulation requires fund managers to provide indicators measuring the ESG impact of their sustainable management, echoing the "Taxonomy" regulation which will require the same managers to publish the "green" portion of their designated funds as of 2022.
"Behind this movement is the desire to anchor ESG analysis on realities that really take into account the climate emergency, social, societal and governmental requirements and corporate governance: a superficial ESG analysis that would only be linked to public information from companies is therefore no longer relevant", comments Eliane Meziani, Senior Advisor - Public Affairs at CACEIS.
The recent position of the French AMF (Autorité des marchés financiers), based on the desire to verify and assess the commitment to take significant account of extra-financial criteria, is in line with this desire.
In order to ensure a good understanding of the diversity of the offer and to prevent the risks of greenwashing vis-à-vis non-professional clients, the AMF has enhanced its paper(1) by defining minimum standards enabling management companies to communicate in a proportionate manner as to the effective consideration of extra-financial criteria.
Thus, three operational variations have been identified:
- An approach based on a significant commitment presenting the extra-financial criteria as a central element of product communication by referring to them in the fund's name, in its commercial documentation or in its KIID;
- An approach without significant commitment, called reduced, on the consideration of extra-financial criteria when the communication is not central and is made in a concise and balanced way on the limits of the consideration of these criteria in the KIID and in the commercial documentation;
- An approach that does not meet the standards of central or reduced communication and that informs on how extra-financial criteria should be taken into account only in the prospectus.
It should be specified that the extra-financial criteria constitute a central element of communication when:
- The regulatory documents provide for measurable objectives in the support of these criteria;
- There is a significant commitment in this support (improvement of rating, selectivity or an extra-financial indicator in relation to the investment universe);
- The rate of analysis, extra-financial rating or coverage of the extra-financial indicator is greater than 90% (either in number of issuers or in capitalisation of the net assets of the UCI).
Consequently, any consideration or modification/removal of the extra-financial criteria, regardless of the regime (mutation or simple change), must be the subject of a prior notification to the AMF by means of a dedicated form.
With regard to the timetable, these provisions apply:
- Immediately for all creations, modifications of UCIs and notifications to the AMF of the marketing in France of a foreign UCITS;
- on 10th March 2021(2) for the stock of products existing on 11th March 2020;
- 30th September 2020 for products created, modified or UCITS under foreign law marketed in France between 12th March 2020 and 27th July 2020.
"Our Fund Structuring clients, both in terms of administrative management and cross-border distribution, have been informed of this schedule and called upon to comply with this regulation" confirms Houda Al Harrak, Financial Lawyer in CACEIS' Fund Structuring department.
Although very precise, this regulation may be subject to change, in particular as a result of work on the delegated acts of the SFDR Regulation.
CACEIS will, of course, keep its clients informed of any developments on the subject.
(2) Date of entry of Regulation Disclosure (SFDR)