France’s government, central bank and financial markets regulator have waded into the debate about what the next iteration of the EU’s sustainable finance plan should look like, calling for minimum standards for ESG funds and more focus on green securitisation and transition bonds.
The Autorité des marchés financiers (AMF), Banque de France, Autorité de contrôle prudential et de résolution, the General Commission for Sustainable Development and the General Directorate of the Treasury have submitted joint proposals in a response to the ongoing consultation on the European Commission’s ‘renewed sustainable finance strategy’ – the sequel to the Financing Sustainable Growth Action Plan, due to be unveiled later this year.
The proposals include “minimum standards applicable to ESG-denominated investment funds… accompanied by a European label for ESG funds in order to clarify the product offer and avoid market fragmentation and barriers to distribution”.
Elsewhere, on financial products and instruments, the group suggests a stronger focus on ‘transition’ rather than ‘green’ – “since the energy transition cannot solely be based on financing the ‘greenest’ projects” – and urges policymakers to step up on green securitisation and transition bonds.
“European capacity based on real estate loans would allow access to a larger number of investors and would help compensate for the lack of green financial products that meet their expectations,” they say. “It would free up capital on banks' balance sheets, while allowing new investments in the real economy.”
Work has been underway by the European Mortgage Federation for some time to develop a ‘energy efficient mortgage’ label.
“ESG ratings is another priority,” the supervisors say, echoing existing calls from major players including the Chair of the European Securities and Markets Authorities for “a supervisory and regulatory framework for ESG rating, scoring and controversies”. The letter also suggests that ESMA should supervise and authorise green bond reviewers.
To improve the flow and quality of ESG data, the supervisors throw their weight behind another existing request, which has been put forward by other key players including the European Fund and Asset Management Association: that the Commission establishes a “single, freely accessible ESG database”. Climate data, and “detailed geospatial information on EU business activities, assets and facilities” are key to enabling investors to assess and tackle risk, the submission adds, pointing to the Non Financial Reporting Directive as one way to introduce such data in a standardised way.
The AMF tightened its own rules in July to ensure that funds that use ESG data but don’t market themselves as 'ESG' funds, still have to meet a minimum standard of reporting.
The move follows new standards from the AMF to strengthen the relationship between how funds are marketed in terms of ESG funds and the reality of the investments' impacts. The ‘doctrine’ was designed to protect retail investors, and now applies to all new funds being sold in the French market.
And it isn’t just French regulators that have sought to tighten rules on sustainable investment in the past weeks. In July, the Russian Central Bank published a new stewardship code for institutional investors, urging them to give preference to companies with clear policies on environmental protection and human capital development, as well as those which value quality corporate governance and establishing relationships with local communities.
Meanwhile, the Israeli national securities regulator, the Israel Securities Authority (ISA), which regulates and supervises the activity of the mutual funds sector, launched a consultation on corporate responsibility and ESG risk disclosures in July. The consultation is open until 3 September.