ESG data remains difficult to measure, ALFI panel says
30 September 2022 Luxembourg
Image: Sergey Novikov
There is an industry need for clarity as ESG regulations continue to be rolled out, but the changes being made are positive, agreed panelists at this years’ Association of the Luxembourg Fund Industry (ALFI) Global Distribution Conference.
The panel, entitled “ESG – How should asset managers reconcile the regulatory requirements to make ESG meaningful to retail investors?”, offered an insight into the difficulties ESG regulations can bring.
All three panelists discussed the difficulty of ESG data collection by asset managers which poses a challenge to firms.
Not only are different providers producing a variety of non-congruent data sets, but many also have a low scope of provisions, Anastasia Petraki, sustainability investment director at Schroders Investment Management, said. The fact that different companies are using different measures makes comparisons between potential investments difficult, if not impossible.
Regional differences in interest around sustainable investments (SI) were also noted, with Julia Sauer, senior structuring professional at Partners Group, reporting France and Germany as having a particular focus on the area. In the UK, there is generally a request for more data rather than classifications, she said.
The lack of clarity around the definitions of sustainability and SIs was also highlighted as an issue. As regulations all measure sustainability differently, it can be challenging for clients to decide where to invest. Petraki stressed that “more education is needed” for investors to be able to think about sustainability in a less emotional, and more financial, way.
Changing Sustainable Financial Disclosure Regulations (SFDR) were also discussed, with moderator Marn Stadler-Tjan questioning whether there will be a considerable drop in firms currently categorised under Article 9 upon the implementation of SFDR Level II. Whilst SFDR Level I was more subjective in terms of where products stood, there are now stricter criteria being released, which could lead to companies moving between Articles 6, 8, and 9.
In terms of what data and regulations clients are looking at when considering SI, the panelists gave varied responses. Sauer noted that there was not yet a consistent industrial investor preference, but that Article 8 was favoured over taxonomy.
This was echoed by Petraki, who added that SI and principal adverse impacts measures were easier to understand than taxonomy regulations. However, Geoffroy Marcassol, partner at PwC, argued that taxonomy was a client priority, with the variability and lack of clarity around SI making it a less appealing measure.
The panel agreed that regulations will continue to be amended and clarified, and that changes will occur in ‘baby steps’. While ESG is a mainstream concern it is also a fairly recent one, so data challenges will remain for at least the next few years, both Petraki and Marcassoli said. “It’s a lot of hard work, but it is positive,” Petraki concluded.
The panel, entitled “ESG – How should asset managers reconcile the regulatory requirements to make ESG meaningful to retail investors?”, offered an insight into the difficulties ESG regulations can bring.
All three panelists discussed the difficulty of ESG data collection by asset managers which poses a challenge to firms.
Not only are different providers producing a variety of non-congruent data sets, but many also have a low scope of provisions, Anastasia Petraki, sustainability investment director at Schroders Investment Management, said. The fact that different companies are using different measures makes comparisons between potential investments difficult, if not impossible.
Regional differences in interest around sustainable investments (SI) were also noted, with Julia Sauer, senior structuring professional at Partners Group, reporting France and Germany as having a particular focus on the area. In the UK, there is generally a request for more data rather than classifications, she said.
The lack of clarity around the definitions of sustainability and SIs was also highlighted as an issue. As regulations all measure sustainability differently, it can be challenging for clients to decide where to invest. Petraki stressed that “more education is needed” for investors to be able to think about sustainability in a less emotional, and more financial, way.
Changing Sustainable Financial Disclosure Regulations (SFDR) were also discussed, with moderator Marn Stadler-Tjan questioning whether there will be a considerable drop in firms currently categorised under Article 9 upon the implementation of SFDR Level II. Whilst SFDR Level I was more subjective in terms of where products stood, there are now stricter criteria being released, which could lead to companies moving between Articles 6, 8, and 9.
In terms of what data and regulations clients are looking at when considering SI, the panelists gave varied responses. Sauer noted that there was not yet a consistent industrial investor preference, but that Article 8 was favoured over taxonomy.
This was echoed by Petraki, who added that SI and principal adverse impacts measures were easier to understand than taxonomy regulations. However, Geoffroy Marcassol, partner at PwC, argued that taxonomy was a client priority, with the variability and lack of clarity around SI making it a less appealing measure.
The panel agreed that regulations will continue to be amended and clarified, and that changes will occur in ‘baby steps’. While ESG is a mainstream concern it is also a fairly recent one, so data challenges will remain for at least the next few years, both Petraki and Marcassoli said. “It’s a lot of hard work, but it is positive,” Petraki concluded.
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