ESG data needed to comply with SFDR regime ‘limited’ – Cerulli

The environmental, social and governance (ESG) data needed to comply with the European Union’s Sustainable Finance Disclosure Regulation (SFDR) is limited, according to Cerulli Associates.

The Cerulli Edge – Global Edition found that one year on from its implementation, the SFDR remains a work in progress that is yet to achieve its key objectives. However, the regulation, designed to improve transparency in the market for sustainable investment products, has made some progress in helping clients understand and compare the sustainability characteristics of investment funds.

“Nearly 82 per cent of asset managers identify the limited availability of ESG data as a significant challenge to implementing the SFDR and 18 per cent deem it somewhat of a challenge,” Cerulli Europe managing director, André Schnurrenberger, said.

The cost of acquiring the data needed to comply with the SFDR is also a major hurdle for some managers. Data vendors tend to charge extra for data beyond ESG scores; however, even then the data is incomplete for some ESG indicators.

Fifty-nine per cent of the asset managers believe that converting SFDR-classified Article 6 (non-ESG integrated) products to Article 8 (funds that comply with certain environmental, social, or sustainability requirements) or Article 9 (funds that specifically have sustainable goals as their objective) is also a significant challenge due to the time and resources needed to devote to the initiative.

Despite the delayed implementation of the SFDR regulatory technical standards (RTS) to 1 Jan 2023, many managers are putting systems in place to be able to publish a Principal Adverse Impacts (PAI) statement ahead of the deadline of June 30, 2023. The PAI requires firms to provide extensive disclosures on various ESG matters, including greenhouse gas emissions and other indicators in a template format.

Over the next 12 to 24 months, improving the reporting and measurement of material ESG risks will be a high priority for around 65 per cent of the managers across Europe that responded to Cerulli’s survey.

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