Boutique asset management firms have called for European regulators to impose caps on ESG research costs for resources provided by third parties in order to create a more even playing field between boutiques and larger firms.
In a recent survey carried out by think tank Independent Investment Management Initiative (IIMI), formerly known as New City Initiative (NCI), found that some members are concerned the new Sustainable Finance Disclosure Regulation (SFDR) could disadvantage boutiques due to the supplementary costs involved.
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Although 61% of respondents said SFDR will improve competition within the asset management industry, 22% said it will have a negative impact and called on EU regulators to cap the amount which data providers can charge for ESG research and analytics to ensure owner-managed asset management firms are not left behind.
Nick Mottram, chairman of the IIMI, explained: “As scrutiny around ESG in asset management continues to grow, this research suggests our members largely believe SFDR can be a force for good in the industry. However, IIMI’s membership is diverse and there is a significant minority which believes the new rules will hamper competition, favouring the resource-rich, larger firms at the expense of smaller, independent, entrepreneurial firms.
“It doesn’t surprise us that a number of members are calling for a cap on the amount which data providers can charge for ESG research and analytics so that they are not at a disadvantage to larger firms, as we have often seen boutiques be disproportionately impacted by the costs of complying with new regulations. Our members consistently rise to meet the challenges that the industry and investment markets throw at them, and there is no doubt that they will adapt and thrive as ESG becomes integral to the service that clients demand.”
The IIMI produced a whitepaper detailing the survey findings called Regulating ESG: A step in the right direction. It explained IIMI’s diverse membership appears to support the SFDR regime with 56% saying their organisation will benefit significantly from complying, while 22% said they would benefit “ a little bit”. A further 22% said they would not benefit.
Members shared their concerns about the regulation potentially disadvantaging boutiques due to the “supplementary costs as a result of SFDR – such as the procurement of ESG analytics from data providers for reporting purposes”.
It also addressed the EU Taxonomy, saying it has been largely welcomed by the industry as previously there has been no standard definition of environmentally sustainable corporate activity, leading to greenwashing.
Mottram explained however the desire for harmonisation of the Taxonomy with other major markets: “IIMI fully supports the principles behind an ESG taxonomy as we believe that it will be vital in eliminating the risk of greenwashing, which is an issue of concern in the industry. We also can’t stress enough how important it is that ESG standards across major markets do not diverge excessively, so as to avoid unnecessary confusion.”