Responsible Investments: From Industry Good Practice To Law

Hitherto, firms have been encouraged by investors, by regulators, or by governments to adhere to recognised principles for responsible investment such as the United Nations' backed Principles for Responsible Investments (UNPRI). But encouragement is hardening into mandate. Firms can expect to see a steady move from industry good practice to rules, and from general regulatory guidelines to law.

Previously a subject left to industry good practice and investor demands, socially responsible investment (SRI) is beginning to move up the regulatory agenda. As a result of the new legally-binding treaty on climate action agreed on in Paris nearly a year ago, policy makers are turning their attention to how they can encourage or require investors and investment managers to adopt strategies that will support countries in meeting their new commitments.

French law has already been modified to require more specific disclosure in the management report of French entities, including investment funds, on the resources put in place to contribute to environmental improvements. The investment manager must consider the assets in which it invests its clients and their impact on the environment. The new rules are applicable from the end of this year.

ESMA is considering how the provision in the new Key Information Document relating to an investment product's environmental objective might ensure proper transparency. And MEPs across the political spectrum are seeking the industry's views about what more needs to be done at the legislative level.

Initial thoughts emerging include the need for clarity on:

what is and what is not SRI convergence of accounting and reporting requirements standardisation of the identification and calculation of investment risk Concerns have also been expressed that regulatory and tax initiatives need to be better aligned, both with each other and with a long-term investment view.

Meanwhile, investing...