Europe has led the way on sustainable finance regulation with the SFDR. As the US and UK step up their own guidance, some regional divergence means fund managers are customising their approach…
It has been over a year since Europe’s Sustainable Finance Disclosures Regulation (SFDR) was brought into force. Since then, around 1,800 funds have been upgraded from Article 6 (funds which do not integrate sustainability into the investment process) to Article 8 or 9, or from Article 8 to Article 9, according to data from Morningstar’s 2021 review of funds published earlier this year.
In a survey of the industry by Private Equity Wire, around eight out of 10 respondents expected ESG to be an area of greater regulatory focus, within a list of other priorities. But with the inevitable delays in these regulations, there is the potential for SFDR to turn into a fund product label and revert to being a marketing tool, says an advisory source. Subsequent regulations, if implemented incorrectly, run the risk of devaluing the entire ESG proposition, the source adds.
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