We had the pleasure of hosting an engaging and interactive dinner, where industry-leading portfolio managers, researchers, and specialists in board governance practices delved into this topic using examples from their own experience. 

The regulatory framework for asset managers is evolving in terms of transparency and disclosure. The hawkish regulatory approach by some European national regulators and demand for more rigorous due diligence in corporate governance within emerging markets already threaten to grey/blacklist several benchmark names, largely coming from state-controlled sectors. 

The growing discrepancies in regulatory regimes in the US, Europe, and Asia may also create a jurisdictional arbitrage for asset managers to tailor products for certain regions subject to the regulatory bar. The introduction of SFDR, CSRD, S1, S2, and nature-related disclosures may assist asset managers in being compliant, but now the challenge is to collect that data from investees. 

We focused the discussion on these trends and the upcoming challenges to the asset management industry as the sector emerges from a rush to ESG investment products that have resulted in poorly designed products, some of which are criticized for greenwashing. 

Among the drivers contributing to this chaos, we find a panoply of ESG rating methodologies that contradict one another, a largely unfinished regulatory framework lacking definitions, and poor or material gaps in data. Not only does data availability remain elusive, but when available, it raises the question of accuracy given that it remains unaudited or unverified by an independent third party. All this bears heavily on the sector’s reputational risk, given the frustration and disappointment of the owners of capital, which includes retail investors.