Asset Management
Asset Management
by Arthur Carabia and Irene Rey
SRI investing: sustained regulatory momentum The EU is continuing to roll out its sustainable finance action plan and published a new package of measures on 21 April 2021. Some of these measures are once again particularly important for asset owners and asset managers and therefore ICMA’s Asset Management and Investors Council (AMIC). They will affect, among others, risk management and financial advice functions and may have implications for products underlying investments. The obligation to consider a client’s sustainability preferences when a financial adviser assesses a client’s suitability for an investment is probably the most important provision introduced in this package. In order to avoid misselling or misrepresentations, investment advisers should first assess the investor’s investment objectives, time horizon and individual circumstances, before asking for the client’s potential sustainability preferences. Financial instruments will need to have specific features to be able to meet the client’s potential sustainability preferences. They will need either to have a minimum proportion of investments in sustainable investments as defined under the EU Taxonomy or SFDR or consider principal adverse impacts on sustainability factors as defined under SFDR on a quantitative or a qualitative basis (ie list of ESG KPIs). The proportion of investments in sustainable investments or the consideration given to adverse impacts will need to be determined by the client and the products identified accordingly. These new measures present several challenges. Asset managers will have to guide clients through the different product types and new concepts introduced by these new rules and achieving this in clear, concise and simple terms may prove to be difficult (eg distinction between the sustainable investments under SFDR and the Taxonomy, explaining the “do no significant harm” feature). There PAGE 40 | IS S U E 62 | THIRD QUARTER 2021 | ICMAGROUP.ORG
might be a discrepancy between the minimum level of sustainable investments required and the level that can be achieved by certain products (eg owing to the diversification pocket, lack of sustainable investment opportunities, lack of legal certainty around the implementation of certain concepts and reversibility of sustainable investments). Another difficulty will be to understand what the consideration of principal adverse impact actually means and if some strategies or types of products can or cannot qualify (eg exclusion only product, engagement strategy). Some national regulators have or are considering to set local expectations for ESG/sustainable products either in the context of the SFDR or MiFID implementation. In France, for example, the AMF “anticipates” (but does not require) that sustainable products, as defined under Article 9 of SFDR, should have measurable targets as defined under its position in 2020-03 (minimum 20% reduction of the investment universe; average rating of the product must be higher than the average of the investment universe after reduction; non-financial coverage must be greater than 90%). There are reports that Germany is consulting on the possibility to require funds labelled as or marketed as a sustainable investment fund must be at least 90% invested in “sustainable assets”. These diverging approaches are a great source of concern for asset managers as they could fragment the European market for funds and undermine the purpose of SFDR and the sustainable finance action plan of the EU. AMIC, which is developing an implementation guide for SFDR, will continue to monitor these developments and, when it can, will urge the EU and local regulators to opt for a coordinated approach. Contacts: Arthur Carabia and Irene Rey arthur.carabia@icmagroup.org irene.rey@icmagroup.org
