Urgent call for fund managers to get ahead of new ESG reporting deadlines

New poll findings in a recent webinar hosted by Bovill Newgate has revealed that while approximately 90% of firms recognise ESG (Environmental, Social, and Governance) as a crucial focus area, fewer than one-third are currently equipped to handle any substantial ESG reporting data, however, as early as 31 July 2025, they will be required to evidence their reporting data.

This disparity highlights the urgent need for firms to prepare for impending regulatory changes and enhance their reporting capabilities, particularly as the EU is also considering product categories similar to SDR labels, potentially impacting future disclosures.

Critical regulatory changes impacting fund and asset managers are about to come into effect. These changes, under the UK's Sustainability Disclosure Requirements (SDR) and the EU's Sustainable Finance Disclosure Regulation (SFDR), demand immediate attention.

Abi Reilly, funds practice lead at Ocorian’s Bovill Newgate said: “Under SFDR, fund and asset managers should already have robust reporting in place, given their obligations although our experience working with clients is that sourcing appropriate data for the detailed product disclosures remains a significant challenge.

“With SDR, it's understandable if firms are just beginning now. However, with reporting deadlines only a year away on 31 July, they must not underestimate the time and resources needed to prepare the necessary reports.

“The biggest challenge lies in obtaining the required data and determining if it's collectible. If not, how will they fill these gaps? Will proxy data need to be used? It's crucial for fund and asset managers to engage with their portfolio companies now, and ask the relevant questions – for example, where a fund has a focus on environmental sustainability does the company measure its carbon footprint and its water wastage and where a fund has a more social equality focus, does the company have appropriate diversity and inclusion policies and how does it deal with vulnerable employees/customers.

“Firms need to establish a robust standard and identify the data needed to support it. These questions must be asked now to ensure the necessary data can be produced. Over the next 10 months, firms must work collaboratively with companies that struggle to provide data, rather than cutting them off. Fund and asset managers should use their stewardship strategies to work with portfolio companies to come up with a reporting plan.

“Our message is simple, although the reporting requirements may be complex: don't delay. If you're aiming for a label or will be drawn into the regime by marketing funds to retail clients using so-called ‘green’ language, you will need to be in a position to make the relevant disclosures. Even if your focus is only on professional investors and you decide not to use a label you will still need to substantiate any claims made in investor marketing documents in order to comply with anti-greenwashing regulations.

“It seems to me you need data. Everyone needs data. Even firms currently reporting under SFDR might not be doing so in the most effective way. Deciding on what data you need, gathering it efficiently and supporting your portfolio companies to improve their data over time is the key to successful reporting and compliance with the both the letter and the spirit of the UK and EU regimes."

Hatim Baheranwala, cofounder and CEO of Treety, Ocorian’s ESG reporting partner added: “Many firms still have their reporting frameworks in a theoretical place - or worse - haven't taken a clear stance on what they would like to report.

“We know from experience that the moment the rubber hits the road and gets in front of boards and investors, there'll be questions around data completeness & data accuracy assumptions. The quicker firms can get to a point of formalising their reporting processes, and working with real reporting data - the better.

“The launch of the UK SDR is one more from a long list of signals that the movement towards increased ESG & Sustainability related reporting is irreversible. And that’s where robust reporting solutions come in – we believe all asset managers need to build the necessary internal processes & put in place the necessary tooling to stay aligned with how our industry is evolving.”

Key actions to take now:
1. Anti-greenwashing rule (effective now – since 31 May 2024): Ensure all marketing materials, client communications, and websites comply. Avoid unsubstantiated sustainability claims.
2. Product labelling (effective 31 July 2024, for some):
3. Choose appropriate labels (Impact, Improvers, Focus, or Mixed Goals) based on your product's sustainability objective.
4. Ensure 70% of assets align with the chosen label.
5. Prepare consumer facing and pre-contractual disclosures for labelled products.
6. Naming and marketing rules (effective 31 December 2024, for non-labelled retail products):
• Avoid "sustainable," "ESG," or "impact" terms in product names unless labelled.
• If using sustainability terms without a label, prepare disclosures explaining the reason and investment strategy.
7. Ongoing disclosures (effective 31 July 2025): Establish processes to regularly update and report on progress towards sustainability objectives or investment strategies.
8. Entity level disclosures (effective December 2025 – > £50bn, December 2026 > than £5bn): Larger asset managers will need to prepare disclosures on governance, strategy, risk management, and targets related to sustainability.