Dutch financial regulator to look at funds’ compliance with SFDR regs

AFM puts out paper exploring Dutch retail market for sustainable funds.


Dutch financial watchdog AFM has revealed that it will look into the compliance of investment funds with the EU’s anti-greenwashing Sustainable Finance Disclosures Regulation (SFDR) this year. 

The regulator announced the “supervisory investigations” in a new paper exploring the Dutch retail market for sustainable funds, which looked at 12 retail funds recommended by prominent providers. 

Assets invested in EU-based ESG funds rose by 9 percent in the second half of 2021 to more than €1.6 trillion, according to the AFM, representing just shy of 20 percent of the bloc’s fund market. 

Given that the ESG market and accompanying regulation is still relatively nascent, however, the regulator is concerned about the potential risks to retail investors.  

One of the issues raised in the paper is the increasing use of SFDR categories by fund providers when marketing their funds.  

AFM states that, while this might help consumers choose a fund, there is a risk that SFDR terminology could be seen as a label which attests to a fund’s sustainability rather than – as is the case – a classification which determines the disclosure obligations it must comply with under EU regulation.  

To classify as Article 8, or a so-called light green fund, the product must promote environmental or social characteristics, while Article 9 funds – dark green or impact funds – must pursue environmental or social objectives.   

The self-classification of funds under the SFDR and the associated risks of greenwashing – the issue the regulation was established to address – are increasingly on the radar of national regulators. Last year, AFM itself highlighted that there were concerns around a range of asset manager disclosures. For example, the regulator noted that question marks were raised for 46 of the 100 or so Article 9 funds. 

In February, Morningstar also warned that asset managers could be accused of greenwashing in relation to SFDR fund reclassifications due to “business-as-usual” approaches and a lack of ESG information in fund documents. 

In its 2021 review of funds classified as Article 8 or Article 9 funds, Morningstar cautioned that funds which change their classification without making any changes to their investment strategy “have legitimately raised concerns that asset managers are greenwashing their product ranges”. 

More broadly in its paper, AFM states that it is often not easy to understand, particularly for funds with a broad sustainability objective, how strict their stock selection is and on what criteria shares are included or excluded.  

The AFM stressed in the 12-page document that it attaches great importance to ensuring that sustainability expectations between providers and investors do not diverge.

In addition to the supervisory work on SFDR this year, the regulator said it will contribute to the further development of regulations in the EU and will continue to engage in dialogue with both providers and investors about that regulation. It also added that it would be undertaking further research on the functioning of the market in relation to the issues raised in the paper.  

Earlier this month, the European Commission adopted long-awaited rules setting out the technical requirements and criteria that EU fund managers will need to comply with when reporting the sustainability performance of their products under SFDR.