Hitherto, firms have been encouraged by investors, by
regulators, or by governments to adhere to recognised principles
for responsible investment such as the United Nations' backed
Principles for Responsible Investments (UNPRI). But encouragement
is hardening into mandate. Firms can
expect to see a steady move from industry good practice to rules,
and from general regulatory guidelines to law.
Previously a subject left to industry good practice and investor
demands, socially responsible investment (SRI) is beginning to move
up the regulatory agenda. As a result of the new legally-binding
treaty on climate action agreed on in Paris nearly a year ago,
policy makers are turning their attention to how they can encourage
or require investors and investment managers to adopt strategies
that will support countries in meeting their new commitments.
French law has already been modified to require more specific
disclosure in the management report of French entities, including
investment funds, on the resources put in place to contribute to
environmental improvements. The investment manager must consider
the assets in which it invests its clients and their impact on the
environment. The new rules are applicable from the end of this
ESMA is considering how the provision in the new Key Information
Document relating to an investment product's environmental
objective might ensure proper transparency. And MEPs across the
political spectrum are seeking the industry's views about what
more needs to be done at the legislative level.
Initial thoughts emerging include the need for clarity on:
what is and what is not SRI
convergence of accounting and reporting requirements
standardisation of the identification and calculation of
Concerns have also been expressed that regulatory and tax
initiatives need to be better aligned, both with each other and
with a long-term investment view.
Meanwhile, investing institutions are increasingly incorporating
green investments into their portfolios. These might be new
investments or existing investments that are brought into
compliance with SRI requirements.
Since Luxembourg is the first domicile for responsible investing
funds in Europe in terms of assets under management,1
investment managers setting up their funds in the Grand Duchy have
a key role to play in helping to encourage investing institutions
in the right direction via their communications and the investment
strategies they offer. They must start asking themselves:
How well and how regularly are we engaging with our
institutional clients on SRI issues?
Are we explaining SRI-compliant products clearly and
effectively to retail investors?
How embedded in our investment offerings and processes is SRI
Do we need to review our current investment and operational
Can we bring existing products and strategies into compliance
with recognised SRI principles?
Are we engaging with regulators and legislators as they
consider new rules?
Now is the time for investment managers to engage in the
European and global debates, to have a regular dialogue with their
clients on SRI issues, and to evolve their investment strategies
and product options for a world in which SRI becomes the
norm—not a nice-to-have extra.
1 European Responsible Investing Fund Survey 2015,
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