Sustainability standards move centre stage for Europe’s asset managers

Marco Zwick, head of funds at Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), has highlighted the implementation on 10 March next year of the EU’s Sustainable Finance Disclosure Regulation (SFDR) as a significant challenge for the market.

“The SFDR will be a big challenge for the sector and for regulators, and everyone will have to move fast,” he said. “We are defining a fast-track process for prospectus updates, because the EU rules give no leeway on the deadline.”

Zwick was speaking as part of the London conference of the Association of the Luxembourg Fund Industry (ALFI).

The conference heard that SFDR compliance is just one aspect of the challenge facing the asset management industry in incorporating sustainability into its strategies and operations.

“We need to show clients we care about sustainability and to translate that into investment decisions,” said Aviva Investors’ global head of product strategy Steven Blackie.

“There has been a tectonic shift toward ESG, which now underpins every investment strategy in a way not seen two years ago, and we’re only scratching the surface,” Blackie added, suggesting this could affect the industry in less obvious ways:

“As investors demand environmental and social outcomes, this could tip the balance back from passive toward active management.”

However, the road to sustainability, although paved with good intentions, remains a rocky one.

Fidelity International CEO Anne Richards pointed to the problem of a lack of consensus on sustainability standards and definitions.

“I’m less worried about greenwashing than about confusion over what constitutes green investment,” she said.

“Managers are having to figure out what’s right – for example, some advocate engagement with fossil fuel companies to effect change, while others simply exclude them. We need comparable and consistent criteria and measurable characteristics. At present there are so many different taxonomies – what we need is something that looks like accounting standards.”

Schroders’ head of Europe Karine Szenberg was confident, however, that the sustainability trend is unstoppable, and implies a new role for asset managers.

“Sustainability and stewardship are completely interconnected,” she said. “Initially the focus was on governance, but environmental and social impact are now equally important. Today unsustainable businesses and sectors have nowhere to hide.”

The mood music is being reflected in a predicted surge in demand for sustainable products from investors- a recent PwC study forecast that ESG considerations could drive up as much as 50% of all European fund assets by 2025.