Q. Investors and industry bodies have called on the European Commission to uphold ‘the integrity and ambition’ of the European Sustainability Reporting Standards to maintain alignment with the Sustainable Finance Disclosure Regulation (SFDR). Any such failure, they say, would risk leaving asset managers without the ESG data required to make SFDR disclosures, adding further confusion for end investors and undermining the EU’s sustainable finance ambitions. As the years long wait for clearly defined ESG boundaries and definitions continues, how can asset managers’ and investors’ ESG investment goals be supported by the funds services industry?
A. Globally, sustainable investing is on the rise; a recent EY study found that 78% of investors want companies to focus on ESG activity. Our Global Wealth Management Survey showed that younger investors want investments that generate returns yet still contribute to society. Investor demand for ESG products is clearly to the fore, and asset managers have been responding to this demand, which a high volume of products being launched to cater for this demand.
In the EU, a patchwork quilt of regulations which overlap each other have been introduced, with SFDR targeted at Funds, CSRD at European Corporates, and the first IFRS® Sustainability Disclosure Standards recently being issued will see increasing levels of transparency in respect of sustainability disclosures.
Regulatory scrutiny of ESG-labelled products started to increase in 2022, with several of the industry’s global heavyweights facing investigations or receiving fines relating to accusations of greenwashing, which has continued into 2023.
As we move forward, we would expect would need to understand the impact of the changing regulatory environment as well as the expectations of their investors, and putting a robust control and reporting environment in place, enabling their investors to make informed decisions regarding ESG, while also preparing for regulator and investor expectations of assurance over these areas.
This article was first published in Finance Dublin.