France's financial regulator has mandated fossil fuels must be excluded from Article 9, the first national watchdog to take the step.
The French Financial Market Authority (Autorité des marchés financiers, AMF) has published a proposal for minimum environmental criteria for financial products in the highest Article 9 and Article 8 categories of the Sustainable Finance Disclosure Regulation (SFDR).
In the criteria, the AMF calls for fossil fuels to be banned from Article 9 funds, and severely restricted in Article 8 funds.
For Article 9 funds, which have a sustainable investment objective, the AMF proposes excluding all activities related to fossil infrastructure, with the exception of a very small number of gas power plants and transport infrastructure.
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Since exclusions are made at the company level, not at the activity level, this would mean excluding all companies with fossil fuel activities not aligned with the EU taxonomy.
For Article 8 funds, which promote environmental, social and governance-focused investing, the AMF proposes a lighter touch approach.
Fossil fuel companies could be included provided they have a "convincing transition plan", which should be accompanied by a plan to exit fossil fuel assets.
These plans will need to be sufficiently precise to allow their assessment and exclude the development of new fossil fuel production or transport infrastructure.
The AMF also recommends that detailed information on the commitment made at the fund level should be published.
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As a minimum, this should include published information on votes and specific requests made to portfolio companies, to reduce the risk of greenwashing.
Lara Cuvelier, sustainable investment campaigner at Reclaim Finance, an investor action group, said the move by the French regulator was "an important step in the battle against greenwashing".
She added: "By calling for the exclusion of fossil fuels from "sustainable" funds, the AMF is the first national regulator in Europe to take such an explicit public position.
"It is now up to the European Commission to take the lead so that these sustainable funds can no longer contain companies that develop new fossil fuel projects."
