Both the UK and the EU have moved at a substantial pace over the recent years in regard to sustainable finance regulation, presenting countless opportunities but also challenges for the asset management industry. Given the breakneck speed of these changes, complexity has certainly ensued for those trying to comply.
A major part of the complexity arises from the rather patchy official guidance provided for these new requirements. Whereas uniform principles would be the ideal framework for industry leaders and regulators alike, the reality has been a hodgepodge of guidance, contributing to what can be called a ‘piecemeal’ landscape. Indeed, this inconsistency becomes even starker when certain jurisdictions take it upon themselves to exceed, in parts or whole, the official expectations set by regulatory bodies. This phenomenon, often referred to as “gold-plating”, can further confuse the understanding of what the green line really is.
Another reason for the increased complexity lies in the phenomenon of greenwashing. As corporate entities make claims about their environmental contributions and sustainability practices, questions of the integrity and truthfulness of these statements can inevitably lead to enforcement actions and litigation. Reports show that instances of greenwashing enforcement and litigation cases are indeed on the rise, only adding to the confusion in the sector.
Last, but not least, the sheer volume of legislation and regulation has not helped matters. It is not just the piecemeal guidance and “gold-plating” that confuse the landscape, but also the numerous pieces of legislation and regulation themselves that have erupted during this period of change.
While the challenges that have sprung up are considerable, let’s not lose sight of the fact that these reforms in sustainable finance regulation are undoubtedly a step in the right direction. The future of finance is changing, and change on this scale is, more often than not, messy. It is important to continually take stock, understand the unfolding landscape, and adapt accordingly.
For further insights and understanding, please click here to read the article by Proskauer Rose LLP.