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SFDR: “Confusion” surrounding ESG credentials

sfdr_sustainability_esgThe majority of institutional investors and wealth managers will focus on ESG criteria when evaluating investments in the future.

Research published by Tabula Investment Management showed that 77% of organisations will look at the ESG rating of an investment, while over 60% will focus on ESG labels such as the SFDR rating.

The EU’s Sustainable Finance Disclosure Regulation (SFDR) came into effect on March 10 and was widely welcomed by the funds industry. The SFDR calls on fund managers to classify their funds according to three categories – article 6 which makes no claims of sustainability, or article 8 and 9 which both claim ESG credentials and require firms to provide data to support the claims.

But Tabula’s chief executive, John Lytle, said there was “much confusion” around the sustainability credentials of ESG-labelled funds due to the multitude of different approaches in the space.

 “Our research shows just how focused investors and asset owners are on a fund’s sustainability credentials, and the introduction of SFDR will provide much greater clarity and standardisation in this area,” said Lytle. 

Tabula commissioned research firm PureProfile to survey 100 wealth managers and institutional investors across Europe in February. 

The findings also suggested that one in four institutions and wealth managers will look at the fund manager’s membership to industry bodies such as UN PRI and Climate Action 100+ when evaluating investments in light of the new regulation.

A separate report published on March 10 by Bloomberg Intelligence suggested that UK-based firms face more significant challenges than firms in mainland Europe because of a difference in rules.

The UK has opted not to follow the SFDR or the EU’s taxonomy on ESG funds so any firms looking to market their ESG funds in both the UK and the EU will face additional disclosure requirements

On Thursday, the European Fund and Asset Management Association (Efama) also published a report into ESG in the Ucits market and stated that ESG has “quite possibly reached a turning point” in 2020.

Efama’s director general, Tanguy van de Werve, said: “It is crucial that the investment management industry continues to engage with policymakers to ensure the development and implementation of regulations and standards that enable market participants to fully contribute to the ESG agenda.”

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