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Thursday 24 January 2019

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ESG considerations should not be mandated by regulator, industry says

Written by Sunniva Kolostyak
01/11/2018

EU investment professionals are engaging more with ESG factors but oppose a European Commission mandate, a CFA Institute survey has found.

The Evolving Future of ESG Integration in Investment Analysis report, based on a survey of CFA Institute members in the EU, was published as a response to the launch of the European Commission’s Action Plan on Sustainable Finance.

Measuring the attitude of investment professionals towards their responsibilities to integrate ESG factors in the investment decision making process, the survey found that consideration is particularly high in governance aspects and that managers are routinely considering the environmental and social risks of a company’s products and behaviours as part of a thorough fundamental analysis.

Most of the industry, 85 per cent, believe it is appropriate for institutional investors to take ESG factors into account when making investment decisions but few wanted ESG factoring to become a regulatory requirement.

The report also found that the industry professionals in large oppose the mandate from the European Commission. A total of 72 per cent oppose a legislative mandate that would override what the client wants and instructs the investment manager to consider as relevant investment factors.

A majority of the respondents, 60 per cent, felt that any mandate to consider ESG factors should not force the manager or client into an ESG investment policy during investment analysis.

Only a minority, 32 per cent, thought investments should be consistent with the implications of their ESG assessment and findings.

The CFA Institute said respondents were divided on whether there should be formal taxonomy or rule book on what ESG factors matter in investment analysis.

“This reflects continuing concern about who creates it and how ESG relevance would be decided. There was relatively little support for an EU-level ESG taxonomy of ESG activities: 35 per cent are in favour of a voluntary taxonomy and 24 per cent would support a mandatory taxonomy,” the CFA Institute said in a statement.

CFA Institute director of capital markets policy Svi Rosov, the author of the report, said the survey shows that EU investment professionals are already implementing ESG factors in the investment analysis process to ensure that all material impacts on the potential investment are considered.

“These ESG factors are part of the standard mix when analysts are assessing their portfolio investments, yet there is great concern whether the regulator should legally mandate ESG or any other factors considered by the investment profession,” Rosov said.



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