Ocorian predicts stricter ESG rules for EU asset managers
Stricter reporting rules around ESG could be on the horizon for European asset managers, fund administrator Ocorian has predicted.
The compliance specialist believes that changes will be made to the Sustainable Finance Disclosure Regulation (SFDR) later this year, which could lead to stronger disclosure requirements for asset managers.
Following an analysis of the existing regulations, Ocorian said that it expects to see more taxonomy alignment, where investment products which are labelled ‘Article 8’ (promoting environmental or social characteristics) or ‘Article 9’ (sustainable investment objective) will likely need to demonstrate a stronger alignment with the taxonomy.
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The concept of sustainability risk is likely to receive more focus, added Ocorian, while more emphasis might be placed on disclosures regarding principle adverse sustainability impacts.
Ocorian also suggested that the existing SFDR labels (Article 8 and 9) might be revised or supplemented with new categories to offer more clarity and comparability between different products. Further harmonisation between EU and UK regulation is also expected.
“The aim of the original SFDR…was to provide retail investors and limited partners such as pension funds clarity and transparency on the sustainability characteristics of investment funds marketed to them – thereby tackling greenwashing,” said Hatim Baheranwala, co-founder and chief executive of Treety, Ocorian’s ESG reporting partner.
“The chosen approach was to define a set of expected disclosures and reports, and not undertake any formal labelling. This has unfortunately backfired during implementation, since the reporting categories such as Article 6, 8 & 9 have emerged as de facto labels.
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“It is therefore a welcome sign that the EU is undertaking this review, and we expect the forthcoming amendments to the structure of the SFDR and its related technical standards to be announced soon.
“We are also urging asset managers to stay one step ahead and be prepared – while the regime is being improved and simplified, by entering into this review the EU has clearly signalled that its aim is to eliminate loopholes and ensure standardised sustainability reporting across the entire market.”
Baheranwala recommended that all alternative asset managers start by reviewing their current ESG and sustainability reporting processes and take steps to ensure completeness, credibility and efficiency in their reporting flows, just like they do for their financial disclosures.
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