J.P. Morgan warns that the EU's “transformation fund” label is too strict, and financing in emerging markets may be blocked

The Zhitong Finance App learned that the asset management department under J.P. Morgan Chase said that the “transformation” fund label planned to be launched in Europe may unnecessarily exclude related assets from an important source of financing.

On Monday, Annie Matusevich, global director of sustainable investment experts at J.P. Morgan Asset Management, said at an event held during the “Hong Kong Green Week” that the EU's proposed transformation label “is quite narrow in terms of current discussions.” “We'd rather have a broader definition.”

The EU is currently revising the Sustainable Finance Disclosure Regulation (SFDR) to allow end investors to better understand the products they are buying by introducing clear labels. As part of this effort, the European Commission recommended requiring transformation funds to exclude companies expanding their fossil fuel business, thereby limiting the types of assets fund managers can hold.

Matusevic said that the proposed SFDR revisions will make it difficult for people to “really have the flexibility to understand what kind of asset class and region the transformation means, and to be able to carry out corresponding responsible management based on this, so that they can truly and fully participate in this transformation.”

This planned definition of the concept of “transformation” will also have a huge impact on companies in emerging markets, as high-carbon activities are still an integral part of driving economic growth in emerging markets. Targeting the claims of banks and investors in the region, it will take time to reduce emissions in countries such as India and China. The proposed SFDR revisions include strict restrictions on coal, but coal is still heavily used in emerging markets.

According to Yarek Olshovka, head of the Asia Pacific Green and Sustainability Center at Shengzi Bank, asset managers may eventually choose not to label their funds SFDR, even if they are financing transformation activities.

Olshovka said at the same event in Hong Kong that if the EU's fund label is “too rigid, then we really have to take the risk that the transformation will indeed receive financing, but not necessarily in any form with a label.”