ESG Disclosures: Guiding Principles and Best Practices for Investment Managers
Whether preparing or reviewing Environmental, Social, and Governance (ESG) disclosures for compliance with regulatory requirements in the EU, the United Kingdom (UK) or the United States (US), or for alignment with ESG best practices more broadly in response to investor demand, investment managers and their funds should consider certain guiding principles and best practices.
In the EU, the advice provided by the Securities and Markets Stakeholder Group (“EU Stakeholder Group”) to the European Supervisory Authorities (ESAs) on the draft ESG disclosure templates under the Sustainable Finance Disclosure Regulation (SFDR) highlights a number of guiding principles and best practices, which are relevant irrespective of whether an investment manager or its funds are subject to the SFDR.
The Task Force on Climate-related Financial Disclosures (TCFD) Recommendations, on which the UK disclosures regime will be based, also include seven fundamental principles “to help achieve high-quality and decision-useful disclosures that enable users to understand the impact of climate change.” Similar guiding principles were also echoed by the Financial Conduct Authority’s (FCA) Director of Strategy in his speech on sustainable investments, during which he also stated that “immediate areas of focus are the SFDR and the EU’s Taxonomy for sustainable activities.”
In the US, the ESG Sub-committee of the Securities and Exchange Commission’s (SEC) Asset Management Advisory Committee reviewed current ESG practices for investment products in the US and proposed a number of recommendations to the SEC on the “best practices to enhance ESG investment product disclosure.”
We outline below some of these guiding principles and best practices, as derived from the respective stakeholders groups and insights from regulators. The various guiding principles and recommendations deal with disclosure requirements and practices from the broad perspective of both sophisticated as well as retail investors. However, investment managers that only focus on providing funds or investment services to professional investors will find that at least some, if not all, of the principles may be applied in relation to professional investors.
