While financial regulators around the globe are focusing on common themes such as product-level disclosures, regional or national nuances mean that they are implementing detailed rules and guidance in different ways.
Take, for example, the EU’s sustainable finance disclosures regulation, the UK’s SDR, and the US Securities and Exchange Commission's proposals for US investment advisers and companies.
For cross-border asset managers, this presents challenges for managing and marketing their products.
Differing ESG disclosure requirements mean that a single fund product is unlikely to comply with rules across different jurisdictions and requires firms to juggle multiple sets of standards. This may have a knock-on impact on the operational and financial scalability of their business models.
Adding to the complexity, divergence extends beyond portfolio management. For example, EU wealth managers and advisers are required to collect information and act on their clients’ ‘sustainability preferences’.
Other jurisdictions, including the UK, are yet to adopt a similar approach, although the FCA has now convened a working group to support the industry in advising consumers on products making sustainability claims.
Regulators across the world continue to explore ways to make standards interoperable and reduce the burden on firms, but this is not going to happen overnight.
New standards and tight deadlines will require significant co-ordination and data gathering efforts by firms.
All firms will need robust and adaptable strategies with strong governance, intelligent risk-management frameworks, state-of-the-art technology, good oversight of service providers and with the end investor in mind.
What’s needed now?
There is a danger that, amid the blizzard of regulatory requirements, firms lose sight of the end goal: the need to transition to a more sustainable economy.
This transition will reform our future financial system, create opportunities, and change how financial firms do business.
This requires identifying the areas where firms will have the greatest impact, embedding sustainability considerations across the organisation, and acting in their clients’ best interests.
Put simply, firms need to lean into the new reporting landscape, grasp the opportunities and focus their actions on the end goal – they cannot afford to sit still.
Karim Haji is global and UK head of financial services at KPMG
