Asset Managers face 'significant' costs from EU disclosure rules

Asset managers face ‘significant’ compliance costs to adapt to the new EU Sustainable Finance Disclosure rule which starts to take effect from 10 March, a new report published by Bloomberg Intelligence (BI) says.

BI believes costs will mount up due to the need to increase investment in ESG data and expertise which will give an advantage to bigger firms and those which have already adapted such as Mirova.

Asset managers do not have to fully report how they identify and mitigate the effect of their decisions on the environment or society until 30 June, 2023 – but BI warns managers still need to quickly integrate sustainability into decisions and start quarterly disclosures from next year.

EU-based asset managers are well-positioned for the transition, BI believes, but UK-based firms such as Schroders, Standard Life Aberdeen, Martin Currie, and Hermes may struggle due to Brexit divergence and the British Government mandating a variety of disclosure rules.

“The volume and granularity of disclosures could cause compliance challenges for asset managers. In our view they are already struggling to comply with extensive, duplicative disclosures on performance, costs, charges, and risk under PRIIPS and MIFID 2,” says BI Senior Government Analyst Sarah-Jane Mahmud

The BI report, Asset Managers Feel Heat with Sustainability Rule, warns asset managers may struggle to collect the information they need to comply as the quality of company climate and environmental reporting remains poor due to guidelines being advisory.

EU-based asset managers may gain a competitive edge from the rules being introduced given the increasing demand for ESG funds and the performance of the funds in a downturn which could help asset managers’ overall performance, BI says.

The iShares ESG MSCI USA ETF saw the highest flows in the category at over $9 billion in 2020 as North American interest in ESG accelerated. North America overtook Europe in the first half of 2020 indicating that ESG ETFs may be making their way into model portfolios in the US.