ESG standard not likely soon

ESG investment

A standard around ESG investing is unlikely in the short term as regulators focus on the words and actions of investment firms.

Investors should not expect to see a single standard for responsible investing, but rather regulators asking investment firms to more clearly articulate what they do in regards to environmental, social, and governance (ESG)-focused investing.

Calvert Research and Management chief executive John Streur noted investment regulators in Europe and the United States were considering the imposition of standards around what constitutes ESG investing, but a single definition was likely to hamper development in this area.

“Will we see a universal definition of what is ESG investing? I don’t think so, but what we will see is a requirement that each investment firm state what it means by and what it does with ESG investing,” Streur said during a recent media briefing.

“What we need is for investment firms to make clear what they mean and how they are going to report on it and then we have the latitude to have one firm do it one way and another firm do it another way.

“We are at the stage where ESG investing is innovating and there is interesting work being done, so it is not quite time to fully nail all that down.

“We should allow innovation and differences to occur at this stage of development and what the regulators are focused on is making sure investment clients get an accurate description from the investment firm and appropriate reporting.”

This approach has been taken by the Australian Securities and Investments Commission, which recently issued guidance to help investment firms be clearer in their descriptions of ESG investing.

Streur reaffirmed the imposition of standards is already being preceded by investment firms seeking to improve their ESG, particularly in the US where the regulator – the Securities and Exchange Commission (SEC) – is planning on releasing a standard by the end of the year.

“Corporations are strengthening their reporting even before the rules come out because the SEC is responding to what investors are asking for and companies know investors want more and better information,” he said.

“Right now, we are at peak commentary about ESG data, but at the same time the ESG data has improved significantly and it’s in the process of improving more.

“What we should focus on is that trend and understand we are going to get more and better information about how companies impact the environment and about how companies treat their employees.

“That is going to work its way through the market and there’s going to be more and more differentiation based on how well companies are doing those two big facts.”


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