INTRODUCTION
Asset managers (i.e., investment advisers) offering funds in more than one country are accustomed to adapting to different regulatory requirements. However, the challenges presented by the global regulation of ESG investing strategies are presenting a particularly arduous burden, especially as countries' approaches to ESG regulation become more varied.
Not only do investor demands differ among countries, but the regulators and other controlling bodies have imposed, or proposed to impose, different requirements that will impact approaches to investing fund assets, disclosures, and marketing, even with respect to the same strategies. While the approaches and goals can vary across jurisdictions, one message is universal in all languages: Regulators want asset managers to say what they do and do what they say. Some regimes seek to accomplish this with specific ESG labeling or other requirements, while others are currently relying on existing rules prohibiting fraud and material misrepresentations.
To help asset managers keep up with the current regulatory landscape and get a comparative sense of the requirements and common issues in various regions, our lawyers—located in the Americas (the United States), Asia (Hong Kong, Japan, and Singapore), Australia, and Europe (the European Union, including Ireland and Luxembourg,1 and the United Kingdom)—have provided an overview of regional regulations by responding to the same eight questions regarding the existing ESG-related rules and ESG developments impacting the investment management industry. We summarize, among other things, each country's or region's position on ESG related labeling and categories, investment requirements, disclosure and reporting requirements and restrictions for offshore products, as well as other ESG-related initiatives that could impact asset managers doing business in that country or region. Taken together, this publication provides a high-level view of the overall global ESG regulatory landscape, allowing managers to think strategically about how their firms can navigate this changing environment and effectively approach their business activities in the various regions in which they offer services.
While we expect that governments will continue to address ESG concerns by amending existing or imposing new rules at a rapid pace, the following summary responses are designed to provide asset managers—particularly those with an international business—with a helpful guide, based on practical experience, to current requirements and trends impacting their services and products, as well as offer practical insight into how they can seek to straddle the various regulatory regimes.
WHAT IS NEW?
The global landscape of ESG regulation continues to evolve quickly. Below are some of the key changes that occurred since the last publication of this survey on 17 July 2024:
United States: There have been no significant updates since the last publication of this survey. There has been no regulatory action at the federal level. At the US state level, some states continue to consider and adopt "anti-ESG" legislation and regulation, and conduct inquiries into membership in third-party initiatives, specifically Climate Action 100+ and the Net Zero Asset Managers Initiative. However, a recent court case may serve to limit the scope of "anti-ESG" rulemaking.
Hong Kong: On 16 September 2024, the HKICPA initiated public consultation on exposure drafts of sustainability reporting standards for Hong Kong, on a fully converged basis with the ISSB's previously published IFRS S1 and IFRS S2, with such standards for Hong Kong to become effective from 1 August 2025. In addition, on 3 October 2024, a working group comprised of Hong Kong and international representatives from the ESG ratings and data products industry published a voluntary code of conduct for ESG ratings and data providers intended to be internationally interoperable and part of a globally consistent regulatory framework.
Japan: In August 2024, Japan introduced the "Asset Owner Principles," which notably indicated that asset owners (institutional investors) may need to consider engaging in sustainable investments as part of their fiduciary responsibilities, depending on their investment objectives and the expectations of the stakeholders that they serve. These principles have already been adopted by major institutional investors. Additionally, the FSA's Expert Panel on Sustainable Investments continues to be active in reviewing the progress that the country has made in the area of sustainable investments, including disclosure and accessibility.
Singapore: There have been no new updates since the last publication of this survey.
Australia: On 17 September 2024, the Treasury Laws Amendment (Financial Market Infrastructure and other measures) Bill 2024 received Royal Assent. The new legislation implements mandatory reporting for climate-related financial disclosures. On 25 September 2024, the Federal Court ruled on an ASIC greenwashing action resulting in a record AU$12.9 million penalty.
European Union: Guidelines published by the ESMA for fund names containing ESG or sustainability related terms will begin to apply on 21 November 2024. Such guidelines will apply to UCITS management companies, AIFMs, and other money market fund managers and competent authorities.
United Kingdom: ESG-related naming and marketing rules and disclosure requirements become effective on 2 December 2024. These will form a further part of the FCA's SDR following the earlier introduction of an anti-greenwashing rule applicable to FCA-authorized firms and a fund labeling regime.
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Footnote
1. Please note that individual countries within the European Union may impose additional ESG-related requirements or restrictions. While we touch on some particular considerations for Ireland and Luxembourg, asset managers should consider whether the particular EU countries that they perform services in have introduced rules or guidelines that exceed those that apply to all EU members.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
