Europe’s Standardization of Sustainable Investing Remains an Aspiration
April 1, 2022 — Boston
Asset managers hindered by limited availability and high cost of ESG data
One year on from its implementation, the EU’s Sustainable Finance Disclosure Regulation (SFDR) remains a work in progress that is yet to achieve its key objectives, according to the latest issue of The Cerulli Edge―Global Edition.
Designed to improve transparency in the market for sustainable investment products, the SFDR has made some progress in helping clients understand and compare the sustainability characteristics of investment funds. However, the environmental, social, and governance (ESG) data needed to comply with the SFDR regime is limited, says Cerulli Associates.
“Nearly 82% of asset managers identify the limited availability of ESG data as a significant challenge to implementing the SFDR and 18% deem it somewhat of a challenge,” says André Schnurrenberger, managing director, Europe, at Cerulli.
The cost of acquiring the data needed to comply with the SFDR is also a major hurdle for some managers. Data vendors tend to charge extra for data beyond ESG scores; however, even then the data is incomplete for some ESG indicators.
59% of the asset managers believe that converting SFDR-classified Article 6 (non-ESG integrated) products to Article 8 (funds that comply with certain environmental, social, or sustainability requirements) or Article 9 (funds that specifically have sustainable goals as their objective) is also a significant challenge due to the time and resources needed to devote to the initiative.
Despite the delayed implementation of the SFDR regulatory technical standards (RTS) to Jan. 1, 2023, many managers are putting systems in place to be able to publish a Principal Adverse Impacts (PAI) statement ahead of the deadline of June 30, 2023. The PAI requires firms to provide extensive disclosures on various ESG matters, including greenhouse gas emissions and other indicators in a template format.
Over the next 12 to 24 months, improving the reporting and measurement of material ESG risks will be a high priority for around 65% of the managers across Europe that responded to Cerulli’s survey.
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- In the U.S., the Financial Factors Rule implemented during Donald Trump’s presidency is seen as a barrier to the adoption of ESG investments in defined contribution plans. However, the Department of Labor has since created a more accommodating fiduciary environment for such investments. Accordingly, many asset managers may revisit how they position ESG products in the retirement plan market.
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