AMF ESG Doctrine: Goldplating SFDR by another name?
In light of the looming 10 March 2021 deadlines for both the SFDR (the Sustainable Finance Disclosure Regulation (EU) 2019/2088) and the AMF Position/Recommendation DOC-2020-03 (the “AMF Doctrine”),1 the AMF published a press release on 20 January (available here) to clarify how, in its view, the two sets of requirements interact.
As a starting point, both sets of regulation contain rules relevant to fund products which promote non-financial characteristics (e.g. ESG characteristics) to investors and both seek to limit the ability of managers to greenwash products.2 However, when applied in practice, the AMF Doctrine requires that products being sold as green products to French investors meet a higher standard than that which is required under the relevant provisions of the SFDR. For example, the AMF Doctrine requires that green products satisfy minimum investment criteria (i.e. a certain percentage of a fund’s assets have to be invested in line with the non-financial strategy which is promoted by the fund) whereas Articles 8 and 9 of SFDR contain no such requirement and allow for managers to run blended portfolios.
In its press release, the AMF states that the two sets of provisions are aimed at different aspects of the same issue and that they should be viewed as independent from, but complementary to, each other: the SFDR requires a manager to make certain pre-contractual disclosures in relation to its light and dark green products (i.e. funds which fall under either Article 8 or Article 9), whereas the AMF Doctrine requires managers of light and dark green funds to meet certain minimum requirements in their communications with retail investors. The AMF Doctrine is applicable to both UCITS and AIFs which are permitted to be marketed to retail investors.
In particular, the AMF clarifies that funds which satisfy the requirements of Articles 8 or 9 of SFDR will automatically fall within the scope of the AMF Doctrine. Given the flexibility that SFDR provides for Article 8 and Article 9 funds to have blended portfolios between sustainable and non-sustainable investments, managers are going to have to carefully consider whether they want to make the necessary changes to the management of their funds to meet the minimum standards under the AMF Doctrine, which would then enable them to be freely marketed as green products to French investors without having to incorporate standard warning language into marketing materials (“marketing materials” does not include the KIID or Prospectus).
Counterintuitively, non-French Article 8 or 9 funds which do not meet the minimum investment (and other) criteria under the AMF Doctrine will need to include the following disclaimer in their marketing materials (“marketing materials” does not include the KIID or Prospectus) according to the following timeline to be in compliance with the AMF Doctrine:
“Investors should note that, relative to the expectations of the Autorité des Marchés Financiers, this [UCITS] presents disproportionate communication on the consideration of non-financial criteria in its investment policy”.
In our view, it is likely that a large proportion of the market will end up adopting the warning language in their marketing materials for French clients for the following reasons:
- Article 8 and 9 of SFDR do not require funds to meet the minimum investment criteria in the AMF Doctrine;
- The Irish regulator (the CBI) and the Luxembourg regulator (the CSSF) fast track processes only permit managers to make changes directly relating to SFDR implementation and do not, therefore, cover changes made in order to comply with the AMF Doctrine;
- To meet the standards in the AMF Doctrine would require changes to be made to the way in which a fund is managed, which would be subject to shareholder approval; and
- Managers are already struggling to comply with the SFDR effective date of 10 March 2021, without having to also try and comply with the additional requirements in the AMF Doctrine.
Lastly, we note that the AMF has indicated that it is considering making amendments to the AMF Doctrine to bring it more in line with the EU position (although it has not provided any official timeline as to when such revisions can be expected). Managers may therefore adopt a “wait and see” approach to determine the commercial need to comply with the AMF Doctrine, other than placing reliance on inclusion of the warning language in their marketing materials.
1) The compliance deadlines differ depending on whether a fund is making a new notification for cross-border marketing to the AMF or modifying a previous notification (in which case the fund needs to be in compliance with the AMF Doctrine at the time of making the notification) or the fund has already been marketed into France, in which case the deadline for compliance is 10 March 2021.
2) The Taxonomy Regulation ((EU) 2020/852) states at Recital 11 that “greenwashing refers to the practice of gaining an unfair competitive advantage by marketing a financial product as environmentally friendly, when in fact basic environmental standards have not been met”.