Is Regulatory Reform on the Horizon for ESG?

While it remains to be seen in which direction the U.S will go on regulating sustainability-related disclosures for end investors, there is no doubt that reform is coming. Without harmonized rules on these issues across different sectors of finance and investment services industries, diverging measures will continue being adopted while platforms with differing standards per sector exist causing significant distortions within competition because this creates such large differences between them overall when potential clients want information from every source possible regarding any company they might invest into or work alongside of. A lot has happened lately, and you can bet your bottom dollar (or euros!) those changes are going to affect how we conduct business. See the original below…

With ESG (Environmental, Social and Governance) funds on a dramatic incline, an incline expected to continue going forward, it seems inevitable that regulatory reform is on the horizon. Europe has been leading the charge in the incorporation of ESG considerations into its regulatory framework.

The most relevant EU regulation in this space is the Sustainable Finance Disclosure Regulation (SFDR), which came into effect in March of this year. The SFDR imposes mandatory ESG disclosure obligations on asset managers and other financial markets participants, and is a major milestone in the EU’s efforts to ensure a systematic and transparent approach to sustainability within financial markets, thereby preventing greenwashing and ensuring comparability.

According to its official wording, the SFDR “lays down harmonised rules for financial market participants and financial advisers on transparency with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability-related information with respect to financial products.

We understand that there has been some regulatory uncertainty regarding certain aspects of the SFDR − for example, with respect to the application of some obligations to entities established outside of the European Economic Area or whether a financial product that includes ESG factors in its decision-making process falls within the scope of SFDR Article 8, which sets criteria for ESG funds. However, guidance is expected to be published in the future to elaborate on certain obligations under the SFDR.

Current Reform in the U.S.

In 2019, the Loan Syndications and Trading Association (LSTA), the Loan Market Association (LMA) and the Asia Pacific Loan Market Association (APLMA) published the Sustainability Linked Loan Principles (SLLP), which were most recently updated in July of this year, and also published the Green Loan Principles, which were most recently updated in February of this year. The goal of this published guidance is to promote the development and preserve the integrity of the sustainability linked loan and green loan product by providing guidelines that capture the fundamental characteristics of these loans, thereby promoting sustainable development more generally. It is interesting to note that in the May 2019 version of the SLLP, engaging an independent third party to verify the borrower’s performance against each sustainability target was a recommendation; it is now a “necessary element” pursuant to the latest SLLP.

Perhaps the biggest driver of change in the market, however, stems from investors themselves. For example, in side letters, we have seen an increasing number of GPs acknowledging investors’ commitment to various indexes such as the UN Principles for Responsible Investment (PRI), and we understand that investors have been asking GPs to put those considerations into practice while making investments. We also understand that many investors are insisting on bespoke ESG reporting requirements, which remains challenging since there is no widely adopted standard ESG reporting template.

The U.S. does have the advantage of being able to learn from other jurisdictions such as the EU before implementing regulation or additional guidance. One would hope, however, that regulation, if and when it does arrive in the U.S., acts as a way of clarifying and encouraging market participants in ESG matters, rather than as a deterrent.

The SFDR is a set of EU regulations that allows people to know more about where their money is going and how it will be used. The SFDR and other legislation is also in line with the European Green Deal, which aims to make the EU carbon neutral by 2050.

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ESG: The New Way of Doing Business in Winnipeg, MN

The concept of sustainability has become an important topic in today’s society. It is a complex issue with many stakeholders and perspectives, but it can also have serious consequences for our communities if we do not get things right- so investors should care about this too! Over the last decade institutional investors like ESG more than ever before when investing into companies or organizations based on these issues because they want to make sure their money goes exactly where it needs to – helping out those who need help most while trying maintain as much balance between profits/savings vs social responsibility. It may soon be impossible to get RFP’s without it.
A Growing Trend: More Investors Want To Know About Sustainability Before Investing, so Winnipeg companies need to know how implement ESG strategies.

The change in the way we think about sustainability is coming faster than most companies can adapt. Large or small, all businesses in Winnipeg are going to have a hard time keeping up with this changing landscape and staying competitive if they don’t start taking ESG risks into account sooner rather than later! We want everyone (not just big institutions) having an opportunity for incorporating these changes because Companies won’t survive without adapting adequately which will allow them generate profits while also contributing toward making society better tomorrow instead off today.

ESG The Report is one solution that helps businesses in Winnipeg find their niche in this new landscape by providing information on risks and opportunities related to environmental, social and governance factors affecting them today. Our report offers insights into what investors are looking for from companies in Winnipeg and around the globe.

ESG Frameworks provide investors with insight into how companies are performing in terms of corporate governance, social issues, labour standards and environmental impact. Ask about our ESG Frameworks package to help you get started on making your company, department or organization diverse, equitable and inclusive for all stakeholders.