French regulator to review need for national fund disclosure rules when SFDR is ‘enough on its own’

French financial regulator AMF plans to review its national fund disclosure regime once the EU Sustainable Financial Disclosure Regulation (SFDR) framework is considered sufficient for investor protection.

The AMF’s head of sustainable finance Viet-Linh Nguyen tells Responsible Investor that the regulator’s end goal is to have SFDR and the rest of the EU’s sustainable finance framework “be enough” without additional national rules.

“But we are not there yet,” says Nguyen.

Both the EU and France have rules in place that outline how funds should report sustainability-related disclosures, however the EU’s SFDR is now being reviewed by the European Commission after being criticised for an overly-complex and prescriptive approach.

At the moment, the French rules are still needed, says Nguyen, as there is “still a lot of ambiguity” on how sustainable investment is defined in the EU, and what qualifies as a green or ESG fund.

The regulator is also planning to respond to the Commission’s current consultation on the SFDR, adds Nguyen, after it requested “more detailed and specific responses” that expand on policy recommendations made by AMF in a position paper published in February.

“The context on SFDR has changed. We are still advocating for the transition element, scalability, and separating ‘E’ from ‘S’.  In our paper earlier this year, we suggested discarding the ‘S’ entirely because at that time we didn’t think it was the right time to be specific about it, now there is the possibility,” he says.

But the AMF’s position will remain unchanged, says Nguyen. It will continue to push for a review of the categorisation system, “which is necessary if we want better clarity and trust from investors”, as well as for transition to be factored into the framework.

AMF’s Dutch regulatory counterparts, the AFM, came out in favour of wholesale SFDR reform earlier this month.

The EU regulatory puzzle

On other European regulatory developments, Nguyen says the Corporate Sustainability Disclosure Regulation (CSRD) is the “elephant in the room”, and one of the big missing pieces of the EU regulation puzzle the AMF has been waiting for.

Reporting under the CSRD is due to kick off from January next year.

Another key piece is the regulation of ESG ratings, which the AMF is “following closely” and hopes to see implemented soon. Nguyen stressed that it is “really important” for the regulation to be finalised before 2023 European elections.

The regulator has long advocated for the regulatory oversight of ESG ratings, first calling for European initiatives on the subject alongside Dutch financial regulator AFM in 2020.

He adds the AMF “regrets” that the current scope does not encompass ESG data providers because it wants “transparency to avoid conflict of interest, which is relevant to both ESG data products and ratings”.

On CSRD, Nguyen says it will “help complete the sustainable finance regulation architecture”, adding that it will require “tremendous efforts” from all actors involved. “For some, it will mean redesigning your business model, strategy, governance, and even your products.”

The regulator has already begun engaging in preparatory work with the relevant actors and has a “close dialogue” with both financial and non-financial corporates of various sectors and sizes.

Nguyen says the team is supporting a lot of different actors in their understanding of the European Sustainability Reporting Standards (ESRS), and hopes that reporting will be more than just a compliance exercise .

“Of course, it is compulsory, but it’s also a tool and a leverage. If you don’t understand that, you will spend an awful lot of time and effort on something which may not make sense to you,” he says.

When asked how French companies are feeling about the incoming reporting requirements, Nguyen said the mood varies among organisations, but that the rules are a “big jump” for some actors.

“Some are prepared and have redesigned their internal organisation, and some are a bit afraid of the amount of data points, and are asking how to calculate, how to use different methodology, which external data provider is most reliable, how to do the cost-benefit analysis, and what the regulator’s expectations are for the first reporting cycle.”

But he adds that there is a good level of enthusiasm since the reporting requirements have long been anticipated, and many have been involved in discussing and preparing for the EFRAG proposal.

“People have seen the Commission’s proposal evolve to be much more proportionate, relevant, with more materiality thresholds,” he notes, adding that this means they understand it is not a heavy reporting burden just for the sake of it.

Greenwashing

While the regulator is clearly knee-deep in EU regulation work, it has not stopped it facing backlash from some actors in the market.

Last month, the AMF was accused of a lack of action on greenwashing by environmental lawyer Olivier Laffitte in in a newsletter published by the French SIF.

Laffitte questioned how the AMF could claim to be the “global beacon of sustainable finance” without imposing any sanctions on financial players practising greenwashing. He added that the regulator has a “legal obligation to pursue and sanction greenwashing, and not just notice it”.

In response to these claims, Nguyen said that avoiding greenwashing is part of the AMF’s daily supervisory work, with staff in “constant contact” with issuers or asset managers on regulatory compliance.

“We already have a good policy tool to be able to have a dialogue with actors but just because it’s not a sanction no one sees that,” he says, affirming the importance of dialogue to AMF’s supervisory engagements.

France also has national supervisory guidance that “allows us to have a basis to ensure fund naming and marketing reflects the strategy and is proportionate with the criteria”.

Speaking separately on Emmanuel Faber’s recent criticism of double materiality, Nguyen says the regulator found the reopening of the debate “a bit strange” given that the EU has reached the implementation stage and “very good comparability and interoperability” has been achieved between the ESRS and International Sustainability Standards Board.

For the AMF, he says double materiality is “non-negotiable”. ”It is Europe’s position, which we strongly support.”