ESG guide produced for advisers ahead of EU disclosures legislation

The Alternative Investment Management Association (AIMA) has published a guide to support financial advisers and asset managers in complying with the sustainable finance disclosure regulation (SFDR) that is set to come into force by March 2021.

The regulation is part of a legislative package proposed by the European Commission to move sustainable investment objectives to the core of the financial system of the European Union (EU). Financial market participants and financials advisers will be obliged to disclose how they integrate ESG factors into their investment and risk management processes from 10 March.

For background, the guide explains: “The EU has taken decisive action to support the transition to a low-carbon, more resource-efficient and sustainable economy. It aims to position the EU at the forefront of global efforts to build a financial system that supports sustainable growth.”

As part of the wider sustainable finance action plan, the EC has also set out key actions including the establishment of a detailed classification system – the green taxonomy – to encourage the adoption of a common language and labelling around financial products and the mandatory disclosures for market participants.

See also: Advisers struggling to embrace ESG despite impending Mifid II regulation

The latter, AIMA said, will have a far-reaching impact and in many cases result in amendments to requirements for investment managers such as those running products in line with Ucits, AIFM, and Mifid directives, and non-EU investment managers who are classified as AIFMs may fall within scope.

The disclosure regulation is being implemented to improve transparency in the industry, mitigate greenwashing and to avoid divergent measures across EU member states so the end-investor is able to compare standard information.

Mandatory disclosures include how the firm/product has used the green taxonomy to determine the suitability of its underlying investments, the environmental objectives the investments contribute to and take into account whether the investment is environmentally sustainable.

AIMA’s guide offers a full breakdown on how investment managers need to calculate the above and further explanation on where they may want to publish supportive information.

There is also a timeline for both the disclosure and taxonomy regulations, tables with detailed information on what firms need to disclose at the product level, a compliance checklist as well as detail on enhanced requirements for certain types of products.

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