JPMorgan's asset management arm has cautioned that Europe's proposed "transition" fund labeling scheme could unnecessarily exclude relevant assets from a vital source of financing. On Monday, Anne Matusewicz, global head of sustainable investing specialists at JPMorgan Asset Management, stated during an event at "Hong Kong Green Week" that the EU's proposed transition label is "quite narrow as currently discussed," adding that "we would prefer a much broader definition."

The European Union is currently revising its Sustainable Finance Disclosure Regulation (SFDR) with the aim of introducing clear labels that help end investors better understand the products they purchase. As part of this effort, the European Commission suggests requiring transition funds to exclude companies that expand fossil fuel operations, thereby limiting the types of assets fund managers can hold.

Matusewicz noted that the proposed SFDR amendments may make it difficult to "truly have the flexibility to understand what transition means in different asset classes and geographies, and then have the ability to engage accordingly, so that we can genuinely and effectively participate in this transition."

The planned definition of "transition" would also have significant implications for emerging market companies, given that high-carbon activities remain an integral part of driving economic growth in these regions. Banks and investors targeting the region argue that emissions reduction in countries like India and China will require time. Meanwhile, the proposed SFDR revisions include stringent restrictions on coal, which remains heavily used in emerging markets.

According to Jarek Olszowka, head of the Asia-Pacific Green and Sustainable Development Center at French bank Natixis, asset managers may ultimately choose not to label their funds under SFDR, even if they are financing transition activities. During the same event in Hong Kong, Olszowka warned that if the EU's fund labels are "too rigid, then we genuinely run the risk that transition will be financed, but not necessarily in any labeled form."