Global credit funds & CLO's
February 2020
| Issue 220
Published in London & New York.
Copyright Creditflux. All rights reserved. Check our Privacy Policy and our Terms of Use.
February 2020
|
Issue 220
News CLOs
Managers face ESG disclosure pressure under ‘ambitious and demanding’ EU regulations
Michelle D’Souza
Reporter
New rules finalised by the European Union will shake up the way managers approach environmental, social and governance investing, sources say. The ambitious initiative is relevant for funds which have a specific ESG mandate — but will also be applicable to firms without an express ESG or sustainability focus.
The plan establishes a sustainable finance taxonomy, introduces new disclosure obligations to make it easier for investors to make informed choices and creates carbon impact benchmarks.

The regulations will completely overhaul how fund managers approach sustainability, says Ruth Knox, corporate lawyer at Linklaters. However, although many will welcome the changes, she warns that the regulations are ambitious and demanding, and may come as a shock to those managers which are underprepared.

Disclosures must be made relating to two factors: the integration of sustainability risks in the investment process and the impact that investments may have on sustainability factors.

The former includes website disclosures, pre-contractual disclosures, periodic reporting and consistent marketing communications for the “integration of sustainability risks in investment decision-making”. Additional disclosure will be required for funds that have sustainable investments as their objective.
The sustainability taxonomy aims to create a common language to determine the degree to which an investment can be described as environmentally sustainable. Managers will have until March 2021 to comply with the new sustainable disclosure regulation.

There has been criticism of certain parts of the legislation. Gas and nuclear, at present, do not sit strictly within the taxonomy, but are considered transition fuels. If investments fall outside these ‘pure’ taxonomy definitions, fund managers won’t be able to make claims they are sustainable.

London-based Knox says: “It will change the way funds make disclosures about the percentage of their portfolio that is sustainable.”

Critics have argued for a more flexible framework.

“By going into such granularity, regulators are tying themselves into knots,” says one fund manager.
Share this article:
“The new rules may come as a shock to those managers that are underprepared”
Ruth Knox,
Corporate lawyer | Linklaters
Share this report:
Share this report: