As global regulators look to take divergent paths on ESG disclosure rules, there is no shortage of global bodies looking to bring uniformity to sustainability standards.
In October, the FCA announced they will not enforce the EU’s Sustainable Finance Disclosure Regulation (SFDR) after Brexit. It is still to be seen whether there are plans to develop an ESG disclosure requirement for the UK market. It is however now clear that the UK is not going to wholly adopt the standards set by the EU. Nevertheless, for UK investment firms with EEA domiciled assets the EU standards will in most cases still apply.
In the US, the SEC’s ESG committee is recommending adopting principles-based disclosures, mandatory for issuers, not investment firms, as recently referenced by Ignites.
Despite these regulatory inconsistencies, there are a number of global institutions looking to bring their own voluntary standards.
The CFA institute recently announced a consultation on ESG Product Disclosure Standards with the aim to “develop a voluntary, global industry standard to provide greater product transparency and comparability for investors”.
The British Standards Institution recently published PAS 7341, a set of voluntary standards focusing “on the practical implementation of policies which set out how investment managers can embed their responsible or sustainable investment approach in their investment processes”.
This will soon be followed by a broader framework from ISO which looks to bring definition and standardisation to Sustainable Finance. The ISO technical committee is looking to address the lack of a “globally agreed definition of sustainable finance as applied to the practices, activities and products of the financial sector, and the varying interpretations of what constitutes good sustainable finance practice”.
While there continues to be inconsistencies from global regulators, it will likely be investors that will push for common cross-market standards. Time will tell which standards ultimately become the global benchmark, but until then investment managers should pay close attention to the mandatory requirements in all cross-border markets.