BNP Paribas AM backs Article 8 and 9 reform over new labelling system

Manager says introducing sub-categories for 8 and 9 a better approach, but IEEFA backs reforming SFDR into labelling system.

illustrative image

BNP Paribas Asset Management, one of Europe’s largest fund managers, will back retaining the Article 8 and 9 structure under SFDR as the European Commission consults on its future.

Alexander Bernhardt, global head of sustainability research at the French manager, told reporters that while the Article 8 and 9 structure may not be the “perfect or optimal” outcome, it has “already achieved some of the outcomes stated by the EU in channelling capital more towards sustainability-related activities”.

BNPP AM would favour evolution rather than revolution, Bernhardt said during a 2024 outlook briefing.

In September, the European Commission released a wide-ranging consultation on the future of SFDR. The 44-page questionnaire covers a series of topics including proposals to abolish the Article 8 and 9 system, changes to disclosure requirements, and whether the purpose of the regulation itself is still relevant.

Rather than throwing away the Article 8 and 9 system entirely, Bernhardt said it might be preferable to create sub-categories under each of the two classifications to allow for more granular classification.

“We have noticed that there are issues with that classification,” he said. “Within Article 8, we can see different shades of green and similarly in Article 9, we can see different shades of dark green. We are already making those distinctions ourselves internally so there’s an opportunity to inform the evolution of that framework.”

Bernhardt said the asset management industry had already invested significant sums in adhering to the framework, so there was an opportunity to “evolve rather than revolt”. That said, BNPP AM will figure out how to change its approach regardless of the eventual outcomes, he added.

BNPP AM’s position puts it at odds with other market participants who have publicly set out their positions. At the start of November, Dutch financial regulator AFM came out in favour of wholesale reform of SFDR, while a proposed response from the industry association for asset managers in Ireland also backed the labelling system.

A paper published by the Institute for Energy Economics and Financial Analysis (IEEFA) on Wednesday supported the abolition of SFDR “articles” and the introduction of a new labelling system.

The think tank said that, while either of the Commission’s proposals would be a “marked improvement” over the current system, a new system would be the preferred method.

IEEFA called for a baseline of sustainability reporting for all funds, which would make the need for different reporting categories obsolete. In turn, any set of voluntary sustainability labels should have minimum standards and “process specific standards” where appropriate.

The paper also called for greater harmonisation of supervisory processes across the EU. National regulators have so far taken a light-touch approach, which IEEFA said was due both to a desire to give market participants “breathing room during a burdensome transition period” and because of the difficulty in assessing methods adopted by managers.

If a labelling system is introduced, especially one with third-party verification, “improvements in the current supervisory environment will also naturally be required”. Quantifiable minimum standards for labels will help regulators assess this, IEEFA said, but the monitoring burden will still be considerable.