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French market authority issues a first set of requirements to control sustainable funds communication

In a context of strong growth of sustainable investment funds and a few months after the setup of a dedicated sustainable finance commission, the French AMF (Autorité des Marchés Financiers) has made a significant step in designing the first of its kind set of requirements for investment funds aiming to advertise their sustainability characteristics.

As a securities regulator, the AMF has, among its key mission, the need to assure that the information disclosed to investors is “clear, accurate and not misleading”. In the case of the ever-increasing number of sustainability labeled funds, this means to define rules to avoid risks of greenwashing.

As from March 13th, all new funds wanting to use sustainability-linked branding (SRI, ESG, Sustainable…) as well as those consequently advertising sustainability objectives into their marketing material will have to demonstrate the difference between their portfolio and more traditional investment approaches.

To measure the best-in-class ESG approach used by many French fund managers - which selects the top companies based on their ESG scores - the regulator decided to rely on the quant rules on the strategy issued by the SRI Label produced by the French Finance Ministry. For other ESG investment approaches, fund managers will have to demonstrate the significance of their ESG approach on a case by case basis. The rule applies immediately for new funds, existing funds will have to comply by November 30th, 2020.

This position comes as a first clarification from the AMF on its expectation towards sustainable funds management firms. However, as for now, the quality and pertinence of so-called extra-financial data, or the impact measurement of investment strategies, are not covered in the initial version of the doctrine. This, as well as the case of funds that integrate ESG without putting it at the heart of their strategy or specific approaches adopted by some real assets funds, should be addressed by later versions of the requirements. The latter will also integrate EU regulatory initiatives such as the Disclosure Regulation and the ones coming from its new Action Plan on Sustainable Finance.