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The data problem behind SFDR reporting and disclosures

SFDR is one of the largest pieces of ESG-related legislation rolled out anywhere in the world, and their compliance requirements are a daunting prospect for fund managers and wider financial market participants.

The asset manager’s how-to guide to ESG reporting

There has been an explosion in the popularity of environmental, social, and governance funds in recent years. In light of this growth, fund managers have been increasingly keen to step up their commitment to ESG and its measurement.

The rewards for those that get it right are high. An authentic ESG strategy that is evident through a firm’s products, their investment process and data-driven reporting is easy for existing investors to understand and attractive to prospects that value ESG highly.

Asset managers must demonstrate that their fund disclosures and reporting approach meets parameters which are strictly linked to ESG reporting criteria. But reporting is not an easy landscape to navigate when it comes to ESG.

The EU has started to implement the Sustainable Finance Disclosure Regulation (SFDR), which sets out rules for classifying and reporting on sustainability and ESG factors in investments. But whilst regulators and industry bodies across the globe play catch up, there has been a distinct lack of guidance for asset managers compared to other more established investment reports.

Despite this ambiguity, there are three principles ESG reports should adhere to: authenticity, substance and defendable data. Asset managers need to be transparent on the methodological approach followed in their investment strategy, implementation of governance and the reporting in place.

Today, most asset managers have several options to demonstrate the transparency and accountability of their ESG funds. But how these are implemented for reporting depends on the ESG strategy in place, and the jurisdiction in which the asset manager is operating.

4 top trends driving the ESG reporting agenda in 2022

Interest in ESG has increased exponentially in recent years and there has been no sign of slowing in 2022, so far. But it is not just inflows to ESG funds that has been increasing. As policymakers turn their attention to environmental, social, and governance concerns, there has been increased pressure for asset managers to provide more data and consistent reporting around ESG investments.

Although a tightening of regulation is presenting asset managers with new data and reporting challenges that must be addressed, it is also creating new market opportunities. In particular, the opportunity to develop new fund vehicles that legitimately address environmental, social and governance concerns, and meet the demands of today’s ESG-conscious investors.

So, what are the trends shaping the ESG agenda for asset managers?

SFDR Article 6, 8 and 9 products explained. What do the classifications mean?  

The EU has started to implement the Sustainable Finance Disclosure Regulation (SFDR), which sets out rules for classifying and reporting on sustainability and ESG factors in investments.