The EU’s ESG Framework: Implications + Solutions
Podcast transcription:
Thank you, everyone, for joining us today to listen to the EU’s ESG Framework webinar on the implications and solutions. I’m delighted today to be joined by my colleagues. I’m going to hand you over to them now to allow them to introduce themselves to you.
Welcome. I’m Vanora Madigan, an executive director of DMS Client Solutions based in Dublin, Ireland.
Hi. My name is Daniel Forbes, managing director with the Client Solutions team based out of New York.
Hi. My name is Jason Poonoosamy, and I’m deputy CEO with DMS Governance, and have been responsible for overseeing the ESG product.
Great. Thank you, everyone. We’d now like to kick off today’s webinar. And I’m going to hand you over to my colleague, Daniel Forbes. Thanks, Dan.
ESG Framework to Becoming a Bigger Part of the Industry
Thanks, Ali [SP]. Good morning, everybody. So, as we all know, fund managers are responding to growing demand from institutional investors seeking to allocate to ESG committed funds. In a recent Preqin survey, almost two-thirds of institutional investors said that ESG will become a bigger part of the industry in the next 36 months. While many questions remain unanswered in the industry, particularly around measurement and environmental, social, or governance related risk or return, we are exploring today the first serious regulatory initiative mandating ESG related disclosures.
So, who’s driving the agenda? So, over the last two decades, there have been industry-led initiatives, and there have been politically-led initiatives.
Industry-Led Initiatives
Initially, it was institutional allocators who were at the forefront of the ESG investing initiatives. Some of the world’s largest asset owners were among the first signatories of the UNPRI in the spring of 2006, pledging their support for sustainable investing.
However, it could be contended that allocators could sign on as aspirational supporters of this initiative, and then push the measurements and disclosure requirements onto the investment managers, who had…which has generally made the investment management industry a little bit slower on ESG.
The April 2016 signing of the UN Paris Agreement, aimed at combating global climate change, accelerated the number of PRI signatories as more formal regulation loomed. More than half of the 532 current asset owner signatories joined the list since the start of 2016. In the environment of industry-led initiatives, the pace of true adoption has been sluggish.
Politically-Led Initiatives
In terms of politically-led initiatives, the European Commission action plan for sustainable finance was introduced in 2018, and is coming into effect in March 2021. This action plan is an EU initiative to examine how to integrate sustainability considerations into its financial policy framework in order to mobilize finance for sustainable growth. While voluntary commitment and pressure from investors can move the needle on the investment management industry, it has long been acknowledged that meaningful progress does not come until it is mandated. Initiatives like the European Commission action plan have pushed Europe into the epicenter of ESG commitment, with four out of five asset owners in the region pledging the cause.
If you look at the other major markets, we see a different picture. In North America, less than half of the institutional private capital AUM is managed under ESG considerations, while this figure is even lower in Asia.
In the U.S. the SEC has not taken a stride into position as its European counterpart, in particular, as a result of four years of conservative leadership which has not endorsed progressive policies focused on sustainability, and also due to concerns over regulation.
Regulatory-Led Initiatives
In Asia, there are regulatory-led initiatives in the pipeline. On the 29th of October 2020, Hong Kong Securities and Futures Commission, the SFC, issued a consultation paper on proposed amendments to the fund manager code of conduct that would require fund managers to consider climate-related risks in their investment and risk management processes. The amendment would also require fund managers to make appropriate disclosures to meet investors’ growing demands for climate risk information, and to combat greenwashing.
The consultation paper builds upon the SFC’s December 29 survey on integrating ESG factors and climate risks in asset management, which found that many asset managers considered ESG factors in some fashion, but they fail to take a consistent approach in disclosing and integrating climate-related risk factors into investment processes. The proposals in the consultation paper seek to address these gaps and align practices in Hong Kong with international development, similar to the Monetary Authority of Singapore’s recent consultation on environmental risk factors for asset managers and a range of other market participants.
So, all this leaves something of a void where allocators are, in general, key on incorporating ESG into the strategy, but currently lack the regulatory mandate or structure, which has made this into a bit of a fractured landscape.
Regulatory Mandates that will Impact European Investment Managers
So, that brings us to the focus of this webinar. The focus of today’s webinar is the first such regulatory mandate that will impact directly on European investment managers and managers of European investment products. However, before all you non-European managers log off, the reality of European regulatory initiatives over the last few years is that they have often led to de facto extraterritorial effect.
For example, many listeners will remember the industry conversation of two investment protection rules, including unbundling of research and freight execution costs. This was a European initiative. Due to the interconnectedness of the finance industry, this standard was, in effect, adopted across the board by most of the largest global asset managers. Similarly, it has been confirmed by a number of the largest groups that the European ESG disclosure standards will be adopted globally, and not just the respective European products.
With this context, I will hand over to my colleague, Vanora Madigan, who will provide some more detail on the specifics of this new regulatory mandate. Vanora will then be followed by Jason Poonoosamy, who will provide a practical guide to the implementation of the SFDR. Vanora?
ESG Considerations
Thank you, Dan. As a broad principle, and to kick off, we’re going to take this opportunity today to look at ESG considerations. So, moving to the next slide. What was once an emerging field, ESG has certainly become mainstream as the growth in interest in sustainable investment continues. We’re all well aware that ESG stands for environmental, social, and governance factors. And typically, what ESG brings to mind are environmental issues like climate change and resource scarcity. These form an important element of ESG, but the term means so much more. It covers social issues, like a company’s labor practices, talent management, product safety, and data security. It covers governance matters like board diversity, executive pay, culture, and business ethics, which of course are central to DMS as a governance company. And yet, governance issues are well known for being hard to measure in a tangible way.
A company’s ESG strategy spans the whole breadth of the organization, requiring multiple functions and teams to work together towards a common goal. Companies are at different stages of this holistic review process. And investors’ and boards’ great interest in ESG consideration has in turn led to greater interest from asset managers to review their sustainable investment processes and investment solutions offered.
So, it’s apparent that ESG has come a long way. It’s almost a buzzword that is spoken not just in the asset management industry, but across every facet of our daily lives. Information that was once, you know, gathered manually from limited sources has now a growing industry behind it and providing robust data which will help with the ESG reporting and disclosures, but noting that gaps do remain.
European Commission’s Action Plan on Sustainable Finance: 3 Key Regulations
The European Commission’s action plan on sustainable finance has introduced the first wave of legislative reform by introducing three key regulations: the Taxonomy Regulation, the Disclosure Regulation, and the Low Carbon and Positive Impacts Benchmark Regulation.
A significant driver of the European Commission support for the integration on ESG criteria in the financial markets is based on the European Union’s targets as set down in the Paris Climate Agreement to achieve 2030 targets, as Dan laid out. The aims of the action plan is to encourage capital flows towards sustainable investment in line with the UN sustainable bills. As we know, sustainable investing can mean so many different things to investors, and indeed to investment professionals such as ourselves. I’m sure if I ask all of you who have tuned in as to what ESG means, you’d have so many different takes on the definitions. This can lead to confusion from investors when going through the investment selection process. And this lack of consensus in ESG terminology raises difficulties for our investors to compare products and providers which in turn leads to uncertainty and has a knock-on effect on the attractiveness of ESG products.
Taxonomy Regulation
So, moving to the next slide. The Taxonomy Regulation. This creates an EU-wide classification system or framework for sustainable activities. This will provide businesses and investors a common language for ESG factors, and allow for clarity and transparency when comparing products. The aim of this is to assist not only investors in better decision making, but will also assist companies and issuers in their investment decision making processes.
So, the Taxonomy Regulation, it’s mainly relevant to managers who will offer products with a sustainability focus. However, even managers who won’t offer any ESG products and who will solely offer non-ESG products, they’ll still need to take it into account and put together negative disclosures as part of their fund documentation. I think that’s an important point to point out.
The Taxonomy Regulation builds on the characterization and categories are set out in the disclosure regulations, which we’ll talk about later in this webinar. The three categorizations are products in terms of funds that have sustainable investment as an objective, funds that promote environmental or social characteristics, and non-ESG funds. Requirements of the Taxonomy Regulation will apply in a staggered basis. So, the requirements in relation to the first two points of their regulation are on climate change adaption and migration. They won’t apply till this time next year. While the other environmental objectives will apply from the 1st of January 2023.
Low Carbon Benchmarks Regulation
We’ll now move to the second regulation that we’re going to talk about today. And again, you know, I’m just going to touch on briefly and give more time over to this Disclosure Regulation as that’s a more eminent regulation.
So, the second regulation initiative arising from the European Commission’s action plan on sustainable finance is the Low Carbon Benchmarks Regulation. This provides for standardized sustainability benchmarks. It introduces common standards on climate benchmarks applicable to benchmark administrators. So, the obligation there is with the benchmark administrators. It introduces two new benchmark standards: the EU Climate Transition Benchmark, and the EU Paris Aligned Benchmarks. The regulation, it mandates all other benchmarks that they are to make certain sustainable disclosures for the benchmark administrators.
The two new EU climate benchmarks are not obligatory, but by the 1st of Jan next year, the EU-based benchmark administrators who provide significant benchmarks are obliged to endeavor to provide one or more EU climate transition benchmarks.
Disclosure Regulation
So, moving to the third and final ESG regulation that’s part of this first wave that’s come out of Europe. I’m going to mainly focus on this regulation because it’s coming fast down the tracks to be implemented. And it’s expected for the 10th of March. And this is called the Disclosure Regulations, the SFDR. This requires a fund to be categorized into three categories. And the fund documentation needs to be updated before this March deadline.
So, the three categories of funds are an article 8 fund, which is a light green fund. This is a fund that promotes environmental or social characteristics, although not exclusively. As in the fund does not have to exclusively promote only environmental or social characteristics as long as the fund invests in companies or issuers that follow good governance practices. Second categorization is an article 9 fund, a dark green fund. This is more a rare bird. And this is the fund that has sustainable investment as an objective. The third type of classification is a non-ESG fund, an article 6 fund. I’m going to hand over to Jason now who will talk to the key concepts of this regulation.
Key Concepts of SFDR
Thanks, Vanora. So, as Vanora had outlined, SFDR effectively is an effort to standardize the disclosures that investment managers and participants in financial markets need to make to ensure comparability between disclosures for products.
So, in the effort to do that, what ESMA has done is formalized a few definitions to combat greenwashing which, as mentioned on the previous slide, is where managers may put forward a product that’s being ESG-compliant when in fact there isn’t or isn’t to the same degree as other products. So, some of these concepts will be familiar, although most of them will be new.
Sustainable Investment
The first is sustainable investment which effectively are investments that contribute to either an environmental and/or social objective, provided that it doesn’t add to…or it doesn’t provide this process of significantly harming the other factors while at the same time, adhering to governance principles.
The principle of does not significantly harm effectively means that in the pursuit and achievement of any ESG objectives, that you’re not…it isn’t to the detriment of any other factors. So, as an example, if you’re looking to achieve an environmental objective that a social or governance objective isn’t dealt with detrimentally as a consequence.
Sustainability Risks
Sustainability risks. So, these are just ESG events that could cause a negative impact on an investment’s value, while sustainability factors cover things such as E and S matters as well as those for human rights, anti-corruption, and bribery.
Principal Adverse Impact Statement
I guess, the last key piece that needs to be addressed is that of a principal adverse impact statement, which effectively either report that firms will need to produce generally if they have greater than 500 employees, but there is also the option to opt in. And what it will do is enforce standards whereby firms need to disclose ESG indicators, the impact of those indicators, and how those indicators have performed historically with respect to the impact on investments. And this operates on a complier-explained basis as well. So, if you must disclose or provide a PAI statement, and you haven’t done so, then there needs to be a clear explanation as to why that is. I’ll just hand back to Vanora.
ESG Fund Classification
Thanks, Jason. So, in terms of practicalities, it would need to be determined based on the fund’s investment strategy or indeed proposed investment strategy whether the fund is an ESG fund or not. And this will have implications on whether the fund can be marketed as such.
The classification will be based on a review of the prospectus and the marketing materials. A determination for each sub-fund is to be made and categorized as a non-ESG fund, an article 8 fund, or an article 9 fund. For new funds, of course, this will be considered as part of the drafting of the fund documentation at fund launch process.
ESG Fund Review Steps
So, steps for review. First step is, look at the prospectus, look at the general disclosure in there. And if needed, a new section will need to be added on sustainability risk. It’s not an obligation to integrate sustainability into the investment process, but if it does occur, it needs to be in there. If it doesn’t occur, that also need to be in there.
The sub-fund supplement needs to be reviewed for existing references, which suggest that sustainability factors were taken into account, and specific details to the sub-fund added into the supplement and then cross-referenced back to the general disclosure in the prospectus. Now, to note that the update to the offering documents, so the fund prospectus and supplements, these would need to be considered and approved by the fund board in advance of any filings to be made.
And, of course, the marketing materials. They’ll need to be reviewed as part of this review process because they shouldn’t contradict what’s in the fund offer and documents as well. So, they will need to be reviewed and updated accordingly.
For UCITS funds, the use of KIDs will need to be considered if these need to be updated. We’re not expecting non-ESG KIDs to be updated, but for article 8, article 9, UCITS funds, they will need to be updated and looked at based on an assessment to be made on whether ESG characteristics should be captured in the KID to adequately describe the investment policy and objective of the UCITS funds. So, UCITS KIDs would need to be considered also.
To bear in mind, that annual financial statements to be produced later in the year, they will need to give reference to the disclosure regulations as well. And the fund website and policies, investment managers’ policies will need to be updated. Jason will look at that when he discusses practicalities later in this webinar.
I should point out that the draft regulatory technical standards, the RTS, aren’t finalized yet. And they give the…as to what…and form the level 2 legislation and for the disclosure regs. They won’t be finalized and complete in advance of the 10th of March, but not withstanding this. And even if the draft RTS were to change, we are comfortable and feel that, you know, if classified as per the approach that I laid out, this will be seen as a reasonable approach, some tweaks to the documents as opposed to a rewrite, would be expected later when the RTSs are published.
ESG Fund Classification Deadline
In terms of timing, it is, as I said, imminent, the deadline for the disclosure regulations of the 10th of March. And on the back of this, the Irish Central Bank and the Lux regulator, the CSSF, have put together a fast-track filing process for the purposes of SFDR on the updates. Because, bear in mind, the regulators, it will be too cumbersome and impractical for them to review every fund document in relation to the disclosures.
Although the deadline is the 10th of March, the Central Bank here in Ireland are encouraging applicants to make their submissions well in advance of that deadline to avoid a bottleneck. And we’re encouraging the same. So, for the Q1 board meetings, majority of them happening in February, we’re looking for the board to approve the new disclosure language at those board meetings.
Who Self-Certifies the Fast Track Form?
Vanora, can I ask a quick question? So, you mentioned, you know, this is obviously a European-wide initiative. It seems like the approaches across the two key and jurisdictions of Luxembourg and Ireland are pretty aligned in terms of bringing in a fast-track process. Who actually self-certifies that fast track form?
Yes. Good question, Dan. And we’re getting a lot of questions from this from investment managers. It’s the AIFM ManCo, the management company that certified the funds compliant with the disclosure regulations.
So, here in Ireland, the Irish Funds Industry Group are drafting a self-certification form that will be released to the industry. And it’ll be the management company as such that will certify compliance with the regulation. In Luxembourg, the CSSF has already released the Lux self-certification form. It’s quite detailed, and there are various requirements for the AIFM ManCo to self-certify with. So, yes, it’s the management company that will need to certify compliance with the regulation.
How Waystone Can Help
So, just in terms of some of the practical challenges around SFDR and how DMS can help. So, what DMS have done in conjunction with feedback from our clients working with our law firm and legal partners, speaking with compliance consultants, and getting general industry feedback, we’ve developed an SFDR compliance portal which effectively contains a simple set of questions to help you keep on top of any of your ESG-related matters in terms of SFDR, which will help you determine things like knowing whether or not your firm is within scope. So, it’s obviously a key question.
It’s important to know which of your products are in scope as well, particularly if you’re a non-EU investment manager, AIFM or a UCITS management company. It’s important to know exactly what needs to be updated, given your unique circumstances. So, given the types of products that you have, whether they be funds, managed accounts, or other types of products.
What’s key is to know which disclosures, what needs to be included within each disclosure. So, SFDR just doesn’t mandate the disclosures that need to be made. It also discusses the content of each of those disclosures, and in what context they need to be provided. It’s important to know which items need to be updated, and ensure that they’re regularly reviewed. So, effectively, a checklist to show that you’re able to keep on top of all of your SFDR disclosures. And then, lastly, and just as importantly, it’s important that any of the SFDR disclosures themselves are kept up to date and in line with any regulatory standards.
So, as Vanora had mentioned there, the level 2 regulatory technical standards or RTS will not be coming into effect in time for the level 1 standards, which are due in March. But instead, will be coming further down the line. Effectively, what that means is that the SFDR disclosures may need to be redone or rewritten or updated, depending on the nature and content of those level 2 updates.
Learn More About Our European ESG Solutions
Waystone SFDR Compliance Portal Demo
So, what we’ll do at this stage is give you a quick demonstration of the portal, and hopefully give you an appreciation of how we can assist with your SFDR compliance requirements.
Okay. So, this is the DMS SFDR compliance portal. Once you’ve been issued with a username and password by your DMS representative, you’ll be redirected here, at which point you click Start Assessment.
So, the portal itself has been structured in the following way. Firstly, you’ll be asked to add your firm or firms that you’d like assessed. Secondly, you’ll be asked specific questions about those firms which relate to ESG activities. Thirdly, you’ll be asked to enter the product or products that you’d like assessed. Then you’ll be asked to answer specific questions about those products in relation to SFDR and ESG. And the outcome of all of this is that you’ll be given a customized SFDR assessment result.
So, let’s run through an example here. Firstly, I’ll add a firm, and we’ll call this My Firm. Add in the LEI. I’ll then be prompted for the SFDR entity classification, of which there are two, namely, a financial market participant or a financial adviser. Now, in the event that you don’t know what entity classification you have, that’s fine. That’s why the portal is here to help you. You will simply select Don’t Know. Once you’ve done that, you’ll be prompted with some additional questions to help you find out what your classification is.
So, let’s say, for example, you’re an investment manager and that your authorization type is SEC or FCA regulated. You’ll then be prompted with additional questions to help you determine whether or not you’re in or out of scope. So, once you’ve done all of that, you hit Save.
Now, for each firm that you enter, you will then be asked some questions in relation to your ESG and SFDR activities such as for this investment manager here, which is classified as a financial market participant, the questions are: Have you reviewed all of the policies, taking into account sustainability risk into your investment decision making process? In which case, you’ll either answer yes, no, but you’ve reviewed some policies, or no, you haven’t reviewed any policies. Okay?
In this similar fashion, you’ll be asked, what do you consider as part of at least one of your products today? So, again, it will look at things such as principal adverse impact, sustainability factors, and sustainability risks. In the event that you don’t consider any of these, it’ll ask you if you’re going to consider them in the future, and ask you for a likely future date.
So, the important thing to remember here is that there are a lot of new concepts and terminology that SFDR has introduced. To help you navigate your way through these, we have a guidance document available which, again, will assist in answering your questions.
So, once you’ve completed this section, it’s then the case of coming into the Your Products section. So, in this similar fashion, you’ll enter details about your products. So, let’s say, for example, we had a product called Fund 123. The product type of this is a fund. We’ll then need to select what type of SFDR product classification it is. So, whether it’s a non-ESG product, whether it’s what’s turned a light green product, or whether it’s a dark green product. Now, again, this concept is new within SFDR. So, we’ve got a Help section here just to allow you to figure out exactly what type of classification your product should have.
Once you’ve done all of that, you will then need to select the entities or the firms that have what we term as a relationship to that product, which are basically service providers of the product. So, let’s say, for example, the investment manager for this product was Investment Manager 1, that the distributor was Montlake UK Funds Limited, and that the management company was MDO. We’d then hit Save here. Okay? So, you go through this process for all of the firms that you have, and all of the products that you’d like covered.
The next section then is to…it will ask you specific details about the products that you’ve entered. So, as an example here, the product that’s a knife has been classified as light green. So, in a similar way that questions were asked about the firm, you’ll be asked similar types of questions about the products, namely, do you consider principal adverse impacts on sustainability factors for this product? Yes or no? Does the product use a benchmark? Yes or no?
The questions are customized based on the SFDR classification. So, you can see here that for dark green products, that the questions are slightly different. But the way to answer them is exactly the same, in that the format will require some drop-down selections. And finally, it will do the same for non-ESG products as well. So, just to reiterate, we do have guidance documents available here, which are straightforward, which will allow you, again, to determine what selections you need to make in this part of the portal.
Now, once that’s been saved, the outcome of all of this is that a customized SFDR disclosure document and checklist will be generated for you. So, if you think back to the questions that were originally posed such as, how do I know if my firm is in scope? Which products are in scope? What needs to be updated? What do the disclosures need to include? What do I need to monitor, etc.? It’s all summarized here for your firm in a customized fashion.
So, firstly, to use the first record as an example, the medium that needs to be updated here is the website. It needs to be the website of the investment manager. Just as a reminder, the SFDR classification for this investment manager is a financial market participant. We’ve got some suggested wording, some template wording which, in some cases, can be used as is if you like. In other cases, will need to be marked up slightly in order for it to be customized for your situation. But it’s basically provided within this. So, you can take this and amend it as you need to.
We’ve included here the regulatory reference that this disclosure is covering off. And this is important because you need to ensure that you’ve checked all the boxes in terms of the different articles and requirements under SFDR. To assist you with that, we’ve put in what the specific requirements are in summary form. So, again, lift it from the regulations. And then any additional guidance that might be included under the RTS is listed here, too. Finally, we’ve put in the Update Frequency for each of the mediums.
So, that there is an example of a website disclosure checklist item. And we’ve got a couple of other examples here for, say, prospectuses for a knife, which is non-ESG. Again, some of the prospectus wording and disclosure that can be used, as well as what regulatory items it covers off, and so on and so forth.
So, this customized checklist will be generated for every single combination of firm classification and product classification that you have available to you. The portal itself will be going live in early February, and more details are available from your DMS contact.
Q & A
That’s great, Jason. Thank you for that. And now, I believe it’s time for some questions. So, I’m going to hand you back over to my colleague, Dan Forbes. Thanks, Dan.
Thanks Ali. Yeah. So, a few questions have come up relating to the great demonstration just now Jason.
How does the output of your compliance portal impact the work that legal advisers will be doing to updated funds prospectus?
Yeah. So, a very good question. So, the output itself is in no way intended to replace what our legal firm colleagues will be performing and updating within fund prospectuses. It’s very much…the first thing to note is that it is a component of the output that the portal provides. What it should do is supplement the work that the legal firms are providing. It will also give you a guidance to provide you with additional insight and information as to what types of disclosures can be made within prospectuses. So, effectively, to give you a broader view.
Now, the idea, obviously, is that you can take that output and customize it to your own needs as you need to, but the short answer, Dan, is, effectively, it will complement what is already to be done.
Okay. Thanks for that clarification. The second question, and this comes up an awful lot when we’re discussing these types of cross-border initiatives.
As a non-EU investment manager, how would I be impacted by this new European requirement?
Yeah. So, this is a question, as you mentioned, that has come up within various other initiatives. Within the context of SFDR, it’s been addressed by AIMA within their Q&A, their informal Q&A on SFDR. So, effectively, there is debate as to whether or not a non-EU manager is included. What’s clear is that a fund that is marketed in the EU is within scope, so the product level, it is within scope. But the degree to which the manager managing that product is within scope is up for debate.
Obviously, the two schools of thought are that it should be included, and that it is in the spirit of the regulations to include it. But there is a precedent there for AIFMD whereby it only applies to the manager to the extent that they’re managing EU products. So, it is very much going to be on a case by case basis. It will be down to the discretion of each of the individual investment managers and their associated legal advisers. Unfortunately, Dan, there isn’t a straightforward or singular answer I can provide for that.
Okay. Well, thanks for trying. The other question that has arisen relating to the role of the AIFM.
So, as an AIFM, will this require DMS to collect any additional data points to conduct risk oversight on the portfolio?
So, the risk oversight aspects, in terms of the investment risk oversight, so investment compliance, is going to remain largely the same. There won’t be the collection of any additional data points. It may require some enhanced reporting which will be at the discretion of the client and their investors. But it isn’t mandated within SFDR. However, from the perspective of risk oversight in a due diligence context, it will require additional questions being asked in terms of how the investment manager deals with things such as sustainability risk and sustainability factors within their investment decision making. So, on the due diligence side, there will be an impact, but on the investment risk side and monitoring of investment portfolio, less so.
Okay. Great. Thanks for that. And we have a couple of questions that have come through relating to…it’s more sort of market color type questions which I think they’re always worth addressing. So, I’m happy to throw them out to either yourself or Vanora, whoever wants to pick them up. But the first question from the DMS perspective as a market leading ManCo that works with multiple allocators and investment managers:
Is DMS actually seeing an uptick in interest for ESG-related strategies?
Thanks, Dan. Jason, I’ll take this, if that’s all right with you.
Yeah. Sure. No problem.
Thanks. So, the ESG, you know, it’s really taken the market by storm, and likely so, given the current climate and social consequences our current and future generations are faced with. The knock-on effect for demand for ESG products has surged and is likely to continue on this path. You know, I don’t see any change to that. You know, we are continually getting queries from clients and prospects in terms of investor demands and new vehicles to be settled. So, I really just see that…the growth and continued growth in that area. I mean, that’s no doubt.
Yeah. That’s interesting. Yeah, that entirely is what I see on the U.S. side with increased interest from U.S. investment managers that have some ESG or sustainability component in their portfolios, getting more and more interest from European investors to put their strategy within the European Market. So…is what we’re seeing over here on the U.S. side.
The sort of follow-on question for that that actually came through was:
Will investors restructure their allocation bucket along the SFDR classifications of non-SG, ESG, light green, and dark green, leading to a distinct advantage for green funds in the European market, or is this something they may have already done?
I’ll take this as well, if that’s all right, Jason. So, the lack of ESG industry standards has meant that investors have, you know, up till…at this stage, anyway, at this juncture, created their own processes and classifications of ESG factors, similar to what the asset managers have done. And, you know, that has basically fed into their ESG focus mandates. So, the disclosure regs is the first wave in an industry approach to classifying and creating like for like comparisons between funds. Those investors, you know, I’m sure, in time, will adopt to a more unified approach along the lines of the disclosure regulations is. Nuances will, of course, exist. Although I’d expect these to be the exception rather than the mean. That said, I would say, this is yet to be evident.
Okay. Thanks so much. I think that’s the end of the webinar for today. We’d love to hear any feedback anyone has, any questions. This won’t be the last webinar we do on the topic of ESG. It’s very much an evolving landscape in the U.S., in Europe, in Asia. So, any suggestions or anything that anyone is interested in learning about, either globally or within a region, please do feedback and let us know. And other than that, we’ll wrap up, and thank you for joining.
That’s great. Thank you, everyone. And thanks for finishing up there, Dan. For everyone that’s joined today’s session, we look forward to being in contact with you shortly thereafter. We’ll be furnishing you with a copy of today’s presentation together with a recording and all of the panelist details. Thanks, everyone, for joining.
