Environmental, Social, and Governance (ESG) criteria continue to climb up the global agenda as challenges facing the climate and its future become startlingly clear for individuals and industries around the world.
Asset managers and owners are not exempt from the ESG conversation and are under increasing scrutiny to track ESG factors across their investment processes and meet new sustainability standards in their day-to-day operations. As such, it’s no surprise that ESG investments are expected to reach $41 trillion by 2023.
To assure the prioritization of ESG criteria, in May this year the U.S. Securities and Exchange Commission (SEC) outlined proposed regulations that are currently under review and expected to take effect when a decision is made later this year.
The SEC proposal segments investment strategies into three core categories:
- ESG Integration applies to strategies that consider both ESG and non-ESG factors without prioritizing ESG factors and will require the disclosure of how ESG factors are incorporated into investment funds.
- ESG-Focused applies to strategies that prioritize ESG factors and will require a more in-depth disclosure and standardized visibility of the fund’s ESG strategy.
- ESG Impact applies to strategies that actively look to achieve specific ESG goals and will require the disclosure of information on how the fund is measuring progress towards these goals.
The European Union’s ongoing sustainable finance plan proposes similar disclosures where asset managers will be required to report on their sustainability efforts in line with the Sustainable Finance Disclosures Regulation (SFDR). The continuing debate around nuclear and gas use and how these should be qualified as ESG activities has caused numerous delays to the SFDR’s rollout, though it is scheduled to come into effect before 2023. That being the case, asset managers in the region must still provide information to advisers regarding client ESG activity.
The UK’s regulatory position is calling for mandatory reporting among companies and financial services in line with its Task Force on Climate-related Financial Disclosures, in a bid to create transparency around carbon emissions and allocate capital accordingly.
These proposed regulations, which would apply to investment advisers, business development companies, registered investment advisers, certain unregistered investment advisers, and investment companies, call for better transparency among investment strategies. In action, this would create consistent, enforceable standards that ensure that ESG strategies disclose information on how ESG factors are considered – depending on the importance of ESG factors to a fund’s strategy.
These proposals come in response to rising concerns around ‘greenwashing’ and the apparent free-for-all around ESG as a presentational tactic. Regulating the ESG realm would instill confidence in the sincerity and accountability of ESG commitments, and ideally enable investors to make better-informed decisions by weighing data on a comparable basis. It’s a crucial issue for asset managers who are literally trading on the strength of ESG data to both manage their portfolios and market their products.
Clarity is therefore vital when it comes to ESG activities, but these proposed regulations also highlight the potential liabilities asset managers face should they not adhere to them.
Unsurprisingly, the debate surrounding the SEC’s proposal continues in the form of over 14,000 comments regarding the new legislation. Much of this is the classic tension between public companies and investors when it comes to getting regulations right; on one side those who favor light-touch regulation to make disclosures minimally onerous, on the other those that insist on more stringent rules and frameworks to compel the regular release of ESG-rich data in standardized formats.
Whatever the final outcome of these and future regulations, asset managers are likely going to be held to higher standards around ESG from hereon in.
To meet these standards, they will need an ESG data management software platform that can help them capture the information needed – across their entire investment processes – to remain compliant with changing regulations.
Bipsync and ESG
Bipsync offers a Research Management System (RMS) that is designed to incorporate ESG ratings, research, and analysis throughout the entire investment process – from initial ideas to post-decision actions and everything in between – with ease. It’s data and content agnostic, and seamlessly integrates with other ESG data providers. Increasingly, more and more asset managers and hedge funds are leveraging Bipsync pipelines and our powerful process management to effectively capture and assess ESG data across the entire system, including research stages, operational due diligence checklists, dashboards, and more.
With Bipsync, asset managers can maintain their investment structure regardless of the datasets they choose to use, and can easily migrate data in and out of the platform as priorities and ideas evolve – all whilst preserving the context and integrity of historical research and eliminating any disruption to the investment process.
When it comes to ESG data management software, Bipsync is the perfect tool to help asset managers futureproof their technologies and support their investment research and decision-making process. Bipsync investment research software integrates data at every step of the way, ensuring constant compliance and creating a wholly transparent audit trail ready for when the SEC’s regulations come into play.