At Hong Kong Green Week on Monday, Anne Matusewicz - who leads JPMorgan Asset Management's sustainable investing specialists globally - said the European Union's proposed transition label "as it's currently been spoken about is pretty narrow," and added, "We would rather have that broader definition." The firm's worry is straightforward: a tight label could end up needlessly excluding assets from a key financing channel.
The EU is rewriting the Sustainable Finance Disclosure Regulation to roll out clearer product labels so investors can better gauge what they are buying. As part of the overhaul, the European Commission has put forward a plan that would require transition funds to exclude companies expanding fossil fuel operations, a shift that would limit which assets fund managers can hold in those products.
Matusewicz said the overhaul could make it difficult to have "that flexibility to understand what the transition means, in what asset class, in what region, and then be able to engage where on the stewardship on top of that, such that you can really participate in that transition fully." How "transition" gets defined is especially consequential for emerging markets, where higher carbon activities still support growth. Banks and investors focused on countries such as India and China argue emissions cuts there will take time. Proposed SFDR revisions include tight coal limits, even though coal remains widely used in those economies.
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Jarek Olszowka, who leads the Green and Sustainable Hub for Asia Pacific at Natixis Corporate and Investment Banking, said some managers may choose to forgo an SFDR transition label even as they finance transition activities. As he put it, if the EU's labels "are too rigid, then we're going to really run the risk that the transition is going to get financed, but not necessarily in any labeled format." For everyday investors, that means the money can still reach transition projects, but a fund's badge might not always reflect how it is doing the work.
