SFDR requirements : LBP AM and Tocqueville Finance adjust the classification of eight Article 9 funds

LBP AM and Tocqueville Finance adjust the classification of eight Article 9 funds in response to the latest SFDR requirements

With the goal of defining transparency rules common to all financial players in terms of products and practices, the Sustainable Finance Disclosure Regulation (SFDR), which entered into force on 10 March 2021, defined three categories of funds, commonly referred to by the SFDR article that classifies them:

• Funds only integrating financial risks in terms of sustainability (Article 6 funds);
• Funds promoting environmental and/or social characteristics (Article 8 funds);
• Funds having sustainable investment as their objective (Article 9 funds).

Pending more specific regulatory definitions, La Banque Postale Asset Management (LBP AM) and Tocqueville Finance had previously classified virtually all of their “Label ISR” certified funds as Article 8 funds, and about 15 open-ended funds as Article 9 funds.

The SFDR Level 2 regulatory technical standards (RTS), which will take effect in January 2023, clarified the requirements and called for Article 8 and 9 funds to commit to achieving minimum sustainable investment thresholds. The RTS also specify that while Article 9 products “should make sustainable investments only, such products can to some extent make other investments where they are required to do so under sector specific rules”.

Despite these welcome clarifications for the classification of Article 9 products, there are still some grey areas when it comes to the definition of “sustainable investments”. The Level 1 SFDR definition currently offers significant leeway in the interpretation of sustainable investments, potentially giving rise to varying levels of requirements and thus to major disparities in sustainability scores assigned for similar financial products. European supervisors made it a point to address this concern, calling on the European Commission in September 2022 to provide greater clarifications.

Pending these clarifications, we made the decision to reclassify some of our Article 9 funds as Article 8 funds. We preferred taking this conservative approach rather than lowering the requirement level for the definition of sustainable investments, which would have allowed us to comply with SFDR Level 2 for Article 9 products, but we considered contrary to our commitments. Our ambition is to help our clients achieve the sustainable and civic transition of the economy and thus refuse to level-down our non-financial requirements.

This reclassification, applicable to a limited number of funds in the range, will have no impact on the non-financial strategy and ambition of the funds in question.