A new year and there's a new set of reporting requirements for many in our industry, says Nigel Green, deVere Group CEO and founder
Mandatory in the EU from January 1, the Sustainable Finance Disclosure Regulation (SFDR) aims to improve transparency around sustainable investments.
Whilst this is EU mandated, many, including myself, expect it to be adopted in a similar form in the UK in the near future too.
SFDR is designed to prevent greenwashing and make it easier for clients to discover about a fund's ESG credentials.
Under the new regime, advisers must make pre-contractual disclosures for products that promote ESG traits, as well as disclosures online around their funds.
This demand that funds meet minimum thresholds if they use ESG or sustainability-orientated words in their names is now said to be worrying the industry. Indeed, Bloomberg reported that the industry "is going to fight it."
I believe this approach is misguided.
If anything, further greater regulatory scrutiny over ESG investments should be encouraged as they become increasingly mainstream in order to protect investors' capital and values.
The ESG trajectory, it appears, is on the ascent. Morningstar estimates such funds attracted $22.5bn of new money globally in the third quarter of 2022.
This is less than the $33.9bn of inflows in the second quarter, "but against a backdrop of significant market challenges, sustainable funds held up better than the broader market which experienced net outflows of $198bn over Q3," reports The FT.
The current pushback on the new reporting requirements is based upon, we assume, the perceived view that they are onerous, burdensome and/or, perhaps cynically, potentially costly as they could dissuade potential clients if they don't pass the scrutiny.
This all comes as part of a wider backlash against ESG over the last year which, I believe, is on the wrong side of history.
It's clear that those companies with robust ESG credentials compete more effectively with their peers in terms of related technology, innovation and regulation. In addition, they are more successful at recruiting and retaining top talent. There's no getting away from the fact that those organisation that take their ESG obligations seriously are the ones that demonstrably outperform.
This, together with the core values they represent, is why client inflows into ESG funds are robust - and increasingly so.
I'm sure it will be much to the chagrin of the self-described "anti-woke capitalists" seeking to fight SFDR in the EU and the attempts to implement similar requirements in the UK, but I think the regulation should go further still.
Indeed, a global regulatory framework for ESG investing is now urgently required.
Regulators worldwide need to work together. Initiatives that began in the EU are now spreading worldwide, but much more needs to be done, at a faster pace and with a joined-up approach. There remains a startling lack of consistency in definitions and data.
Considering the momentum of the sector, the time is now for the establishment of a global regulatory framework for ESG investing.
A robust standardised regulatory framework would make the sector even more attractive, which will then help investors reach their financial goals whilst proactively protecting people and the planet.
The pushback on SFDR will, I believe, be futile. It will also be damaging to the industry, investors and the environment.
We should embrace this regulation. Furthermore, we should push for more still to shore-up the sector for the long-term.
