Brexit-led divergence means that UK fund managers are likely to face steeper compliance costs than their EU rivals from the EU’s Sustainable Finance Disclosure regulation (SFDR) which came into effect today.
The regulation is a key plank of the EU’s green finance action plan and has been welcomed as a useful step in bringing more transparency to ESG funds but it has also caused concern about the cost of compliance.
A report from Bloomberg Intelligence (BI) suggests that UK-based firms face more significant challenges than firms in mainland Europe because of a difference in rules.
The UK has opted not to follow the SFDR or the EU’s taxonomy on ESG funds so any firms looking to market their ESG funds in both the UK and the EU will face additional disclosure requirements.
The BI report names the likes of Schroders, Standard Life Aberdeen, Martin Currie and Hermes as firms that “may struggle” as a result of a variety of disclosure rules.
The cost implications of the SFDR, as well as additional ESG reporting requirements from various rating agencies, were also made at a recent webinar hosted by Funds Europe.
Oliver Oehri, co-head, ESG product group, at fund data provider FEfundinfo said that cost would be an issue for fund managers “particularly if you are a small firm with less frequent reporting”.
The SFDR also calls on fund managers to classify their funds according to three categories – article 6 which makes no claims of sustainability, or article 8 and 9 which both claim ESG credentials and require firms to provide data to support the claims.
There was also concern that if SFDR compliance proves too onerous, it will lead some firms to settle for article 6 status rather than striving for article 8 or 9. “They are worried that they will not have the supporting evidence to meet the tests,” said Mikkel Bates, regulatory manager, FEfundinfo.
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