Proposed EU fund categories could make compliant sustainability designations harder to challenge under consumer-protection rules, Frédéric Ducoulombier, programme director for climate regulation and policies at EDHEC Climate Institute, argues in a Responsible Investor commentary published on 28 October.
The European Commission proposes Sustainable, Transition and ESG Basics categories in a revision of the Sustainable Finance Disclosure Regulation (SFDR). An EDHEC Climate Institute article says the categories would have minimum eligibility criteria, streamlined disclosures and restrictions on sustainability-related claims. It argues that meeting a category’s minimum criteria would not, by itself, establish that a product serves the purpose its name suggests.
Responsible Investor says a political compromise could allow the Transition category to include investments in some companies developing new fossil-fuel projects, subject to conditions including Taxonomy-aligned capital expenditure. Portfolio-level emissions reduction is also a qualifying approach under the proposed revision, the outlet says.
The concern turns on how SFDR would interact with consumer-protection law. Responsible Investor says tougher EU consumer-protection rules against greenwashing under EmpCo have been in force since 27 September. Responsible Investor says the rules restrict generic environmental claims and claims about future environmental performance, while tightening controls on sustainability labels. The outlet says the Commission’s SFDR explanatory memorandum and recital 12 state that proper SFDR compliance should satisfy corresponding consumer-protection requirements for claims within its scope. Ducoulombier argues that weak SFDR categories could leave EmpCo policing the wording around official designations.
Evidence behind a category claim remains a separate question. The EDHEC Climate Institute article says ESMA expects managers relying on investee companies’ transition plans to explain how they assess them, including whether targets are validated or science-based. It also says ESMA warns against presenting portfolio decarbonisation targets as equivalent to real-economy emissions reductions. The article notes that ESMA’s thematic guidance introduces no new regulatory requirements.
EDHEC Climate Institute proposes that the revised SFDR require disclosures showing how a product’s objectives, strategy, implementation and progress indicators fit its category. It calls for that requirement to be established in Level 1 legislation, with proportionate evidence and disclosure rules specified at Level 2.
