Regulatory bodies not doing enough on ESG regulation, say alternative investment leaders
More than two thirds (67 per cent) of senior leaders within the alternative investments industry think regulatory bodies are not doing enough regarding Environmental, Social and Governance (ESG) regulation, according to the results of a new survey by Duff & Phleps.
ESG governance considers a number of factors that determine the sustainability and ethical impact of an investment. As such, greater regulation of ESG investments could help ensure they meet the standards required, ranging from a company’s energy use to how much pollution it creates.
Ethical investors need to know that any claims made in these areas are accurate since the ramifications of any unsubstantiated or misleading statements can be dire. For example, one third of those surveyed (33 per cent) believe that environmental trends like resource scarcity from global warming will have the most disruptive effect on the economy.
Slightly fewer of those questioned (30 per cent) felt that social changes such as the ageing population and changing consumer preferences would have the greatest impact on the economy, followed by political trends including Brexit and regulatory considerations (26 per cent).
Ryan McNelley, Managing Director, Portfolio Valuation at Duff & Phelps, says: “Given that so many senior people in the alternative investments space feel environmental and societal factors will be disruptive for the economy, it’s no surprise that most agree more regulation is needed to reduce potential greenwashing within the industry. At the moment, it’s still a bit of the wild west when it comes to how companies measure and market their ESG funds and how they report to their investors. Regulators and standards boards therefore need to consult with market participants across the industry and band together to lay out common standards in this area.”
Many respondents felt that the qualitative nature of ESG data is hard to quantify without universal standards and regulation. Only 25 per cent of respondents agreed that ESG factors could be consistently and reliably measured to evaluate their cost versus benefit to investors. By contrast, 75 per cent of respondents disagreed or disagreed strongly with this sentiment.
McNelley says: “The financial sector can be a powerful actor in fighting climate change and helping to propel social justice. However, we need to quantify and create a generally accepted standard for the measurement of ESG factors within the industry if we are to assess their effectiveness and benefits to society.”