Although ESG reporting requirements are not new, their volume has considerably increased in recent years, particularly in the UK and the EU, at both fund and corporate level. This section only focusses on requirements relevant to Infrastructure funds (see section 6 for coverage of corporate level obligations). There is a notable increase in the focus on transparency and accountability and the pace of change and expansion is set to continue, with many further developments in the pipeline. It is also worth noting that UK funds and businesses may still be impacted by EU ESG regulations. This is naturally the case where they wish to access the EU market, but the EU has also adopted measures with extraterritorial impact including, notably, the Corporate Sustainability Reporting Directive ("CSRD") (see section 6).

Update on the EU's Sustainable Finance Disclosure Regulation

Under the EU's Sustainable Finance Disclosure Regulation ("SFDR") which started applying in March 2021, the managers of EU Infrastructure funds, as well as those of non-EU Infrastructure funds whose in-scope financial products are marketed into the EU, are required to make pre-contractual, website and periodic disclosures of matters around sustainability risk and objectives. Such disclosures are aimed at showing the sustainability profile of the SFDR firm's products as well as how sustainability risks and principal adverse impacts are integrated into the firm's processes at both entity and product levels.

As the industry grapples with the SFDR in its current form, we await the outcome of the European Commission's Targeted Consultation and Public Consultation on the implementation of the SFDR and its possible reform. The consultations focus on whether the SFDR is meeting its stated objectives and whether there are any issues with its implementation. For further information on this and potential changes, please see our more detailed briefing.

What is the UK's approach?

Closer to home, the UK has continued to chart its own course on sustainability and has sought to tailor a wide-ranging, domestic disclosure regime, based on international standards and building on the experience of the EU regime. The UK regime is still evolving, although the cornerstone has been laid and mandatory TCFD-aligned disclosures are now required for large UK asset managers.

Divergence from the EU is therefore inevitable (and, in truth, has already started). The question is, how divergent from one another, in substance, will the two regimes be when they are finalised (or, at least, more settled) and what will this mean for those firms and groups having to comply with either one or both of them in different scenarios?

Key UK proposals

In terms of significant proposals in the UK, the FCA is expected to publish its Sustainability Disclosure Requirements ("SDR") and anti-greenwashing rules for regulated financial entities before the end of this year (see a more detailed briefing here). Though not equivalent to the EU's SFDR, the disclosure requirements of SDR would similarly target improved transparency leading to better informed decision-making by investors. Unlike the current version of SFDR, SDR would also be a labelling regime, creating three categories of sustainability labels for financial products.

In the 2023 Green Finance Strategy the UK Government has also indicated its intention to align the private financial sector with its Net Zero commitment, meaning that UK regulation in the sector is expected to increase further in the coming years, both in terms of further disclosure requirements (e.g. reporting against international sustainability standards) and substantively (e.g. requirements to adopt a transition plan).

Online interactive tool for asset managers

To help asset managers understand their reporting obligations under the UK TCFD and EU SFDR, we have created an online interactive ESG tool, which can be accessed here.

To view the full article, click here.

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