EU Advisers Pitch Overhaul of Sustainable Finance Fund Rules

EU Advisers Suggest Overhaul of Sustainable Finance Rules

By Virginia Furness

LONDON (Reuters) - A group of sustainable finance experts tasked with advising the European Union's executive has proposed a new category system for funds as part of a major overhaul of the bloc's flagship rules on sustainable investments.

The proposal would create three new categories for financial products that the advisers believe will be more easily understood by retail clients, according to an online document, as the EU looks to ensure investments help meet its sustainability goals.

Regulators in June had said that the current Sustainable Finance Disclosure Regulation rules may be too complex and difficult to understand, particularly for retail investors, and that the rules posed mis-selling risks.

Under the proposed rules, existing broad Article 8 or Article 9 designations for sustainable funds would be replaced with three categories, each with minimum criteria, clearly defined objectives and measurable performance indicators.

The "Sustainable" category will focus on investments that the EU has defined as environmentally friendly under its taxonomy or which are otherwise considered sustainable investments.

The "Transition" category would provide scope for investing in companies which are not green yet based on their capital expenditure or transition plans, but which should become so; and "ESG collection", a category of funds which select or exclude certain sectors based on their performance on Environmental, Social and Governance-related factors, the proposal said.

"For retail investors we saw the sustainability preferences were not going in the right direction. Categories should facilitate a common understanding of the type of sustainable products supported by one set of disclosure requirements where exact details depend on each category," said Julia Backmann, head of EU business legal at AllianzGI and Rapporteur of the report.

Backmann said the proposed rules would help clamp down on "greenwashing", or misleading marketing, by setting clear requirements and safeguards and ensuring these are communicated to the end investor in a simple manner.

Top EU officials are also working to simplify the bloc's broader suite of sustainability regulations, including company reporting requirements, after former European Central Bank head Mario Draghi warned of excessive regulatory burdens on EU companies in September.

(Editing by Simon Jessop)