Time for regulators to intervene, say fund selectors

Should domestic watchdogs take a more prescriptive role?

More than eight in 10 investment professionals think that it is time regulators applied more prescriptive rulesets to environmental, social and governance-based investing.

A live poll of delegates at the 2019 Expert Investor ESG Congress in Berlin, found that 85% of the audience thought it was time for regulators to step in and put in place more specific rules around sustainable investing.

The poll preceded a keynote speech by Christian Hardt, ESG Consultant (Germanic Markets) at ISS ESG, in which he noted that domestic watchdogs have already been responding to growing interest in the sector.

Hardt noted the recent sustainable finance paper published by German regulator BaFin, which stressed that “risks for financial market participants” and their clients need to be considered appropriately.

“The pace of discussion in Germany has advanced,” he said. “It is becoming more mainstream. Germany is seizing the momentum and we have picked up with our colleagues in countries in the Netherlands and the Nordics.”

The ESG consultant welcomed the European Union’s efforts in developing the taxonomy and drawing up a list of definitions and labels for benchmarks.

“This is essential in getting a bit more structure into the market,” he said.

When asked whether it was right that some companies are charging substantial amounts to access ESG data, he acknowledged that some research and statistics will always need to be funded, but stressed that healthy competition is already ensuring that costs are not extortionate.

“Reliability of ESG data is essential. Sometimes you have to pay for quality,” he said. “But the [cost] difference will not be huge, because of the competition that exists in the market.”

Hardt concluded his speech by rallying those in the audience to work together and redouble efforts to participate in pooled engagement.

“Group together with others,” he said. This enables you, as an investor, to take action and create meaningful change on issues. If you want to do a pooled engagement, do it with us. ESG leads to a better performance if you do it correctly.”