Tuesday 20 July 2021 12:27 pm

Regulation and investors' demands push fund managers towards ESG

Regulatory imperatives and investor demand are driving an increased focus on environmental, social and corporate governance (ESG) principles, according to a PwC report published today.

The study found that three-quarters of the fund managers questioned – holding £15.5 trillion in assets – are being influenced by investors and policymakers to drive sustainability outcomes.

Regulation

76 per cent of respondents cited regulation as a ‘significant’ or ‘very significant’ factor in their approach to ESG.

These include regulatory initiatives introducing new frameworks for sustainable finance, including the EU Taxonomy Regulation and the Sustainable Finance Disclosure Regulation.

Still relevant for UK asset managers with EU entities and investors, the SFDR imposes obligations and transparency over the consideration of ESG factors since it took effect in March this year.

The majority noted they were not fully prepared for major regulatory changes, though pressure is rising from the UK government’s green recovery plan initiatives.

Commercial necessity

Three-quarters of fund managers surveyed cited investor demand role as ‘significant’ or ‘very significant’ in their firm’s increased ESG focus.

Investors desire for more ESG products is putting sustainable investments considerations high on their agendas. 63 per cent of respondents see an opportunity to develop new product ranges to respond to the change in demand.

The report points to the upcoming COP26 in Glasgow this November, through which the UK government wants to demonstrate its thought leadership on environmental factors. The tightening of UK climate-related regulation is expected. Changing public attitudes, accelerated by the pandemic-induced societal shift, are also changing consumer preferences.

Challenges remain

While 81 per cent of firms have an ESG programme in place, 56 per cent of them are operational. Most respondents implementing such programmes see them as a transformational exercise to drive change across their business.

Many firms are still reacting to ESG initiatives and in process of formulating a comprehensive strategic response. Cross-border differences in regulations are also posing challenges due to the lack of international consistency in ESG regulation, a consideration highlighted by 63 per cent of asset managers interviewed.

“Our research shows that client pressure and the post-Covid realignment of the global economy have added to the regulatory imperative around ESG products,” said Elizabeth Stone, asset and wealth management leader at PwC UK.

“If firms want to remain relevant and stay ahead of the competition, they should now think strategically rather than tactically, considering fundamental change across their organisations,” said Stone.

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