‘Question marks’ around SFDR disclosures by Dutch sustainable investment funds, says regulator

The Dutch securities regulator Autoriteit Financiële Markten (AFM) has found that 46 out of around 100 Dutch investment funds with an overarching sustainability objective under the EU’s sustainable finance disclosure rules did not have an exclusive focus on sustainability or publish granular disclosures on their sustainability characteristics.  

The AFM study compares public disclosures made by more than 1,250 Dutch funds against the EU Sustainable Finance Disclosure Regulation (SFDR). It found that 35% (around 440) were classified as Article 8 funds – those that promote environmental and social characteristics – and 8% (around 100) fell under the more ambitious Article 9 classification for products pursuing environmental or social objectives. The remaining 57% were sold as having no sustainability characteristics.

In its findings, the regulator said that “question marks” were raised for 46 of the 100 or so Article 9 funds but did not provide identifying details.

AFM said: “On the basis of the information provided, the AFM places a number of question marks over the sustainability classification made by managers. This is especially the case when these are classified as funds that aim to make sustainable investments [Article 9 funds].

“The AFM notes that the objective of many of these funds seems broader than sustainable investments and that the investment portfolio often does not focus exclusively on sustainable investments. The consequence of this can be to wrongly create expectations among investors that a fund focuses exclusively on sustainable investments when this is not the case.”

The SFDR will come into force in two stages, with high-level disclosure requirements for fund managers on the integration of ESG into their entity-level investment process already in place since March. 

From July 2022, fund managers will be required to make detailed product-level disclosures, including how investment decisions may have adverse impacts on sustainability factors including human rights, anti-corruption and anti-bribery matters.

The AFM said that disclosures so far by both Article 8 and 9 funds were “often general and often not specific to the fund”, and in many cases did not contain information on the product’s adverse impacts. 

While funds categorised as having no sustainability characteristics or objectives will still have to make high-level disclosures under the SFDR, the AFM study did not include these funds in its analysis.

Commenting on the study, an AFM spokesperson said to RI: “For now, we will only share our general findings with the Dutch fund managers and will not take any formal action. We do however expect that fund managers will study the findings of investigation and where necessary, adapt their presented information and also have a look at their current product labeling based on the SFDR. 

“In the coming period the AFM will monitor how the fund managers have taken up the further SFDR implementation.”

In 2020, AFM and its French counterpart AMF (Autorité des marches financiers) made headlines after submitting a joint proposal for the mandatory regulation of all ESG data providers overseen by the European Securities Market Authority (ESMA).