The European Fund and Asset Management Association (EFAMA) commented on the European Commission’s Action Plan: Financing Sustainable Growth. EFAMA welcomed the European Commission’s leadership on sustainable finance and the momentum created in the run up to the Action Plan, particularly the decision to set up a High-Level Expert Group and explore a sustainable finance strategy for the EU.
EFAMA is supportive of the overall direction of the Commission’s Action Plan on Sustainable Finance and welcomes many aspects of the Action Plan, notably the commitment to strengthen sustainability disclosure, as well as the proposal on an EU taxonomy. The absence of a common language for sustainable assets and the lack of consistent and comparable corporate disclosure on sustainability have long been challenges in the integration of sustainability in the investment decision-making process.
However, EFAMA disagrees with the Action Plan’s statements regarding asset managers not systematically considering sustainability in the investment process. Evidence suggests that integration of these factors has increased in the market over recent years. By embracing sustainability as an integral part of the investment process and supporting the development of responsible investment in all of its forms, asset managers play a pivotal role in supporting sustainable economic growth and long-term financing of the European economy.
EFAMA believes that an EU agenda on sustainable finance should focus on a market driven approach and avoid creating any unintended barriers to market development. This is crucial, given the constant evolution of products, practices and end-investor demands. Any legislative initiatives need to be reviewed carefully to ensure that positive market-led trends continue to thrive. In particular, EFAMA does not believe that a legislative initiative aimed at integrating sustainability considerations in institutional investors and asset managers’ duty is necessary for the following reasons:
• Firstly, consideration of sustainability objectives in investment decision-making or the investment in ‘sustainable’ projects, products or companies has to be driven by those making asset allocation decisions, i.e. asset owners. Asset managers cannot create ‘sustainable’ products which do not respond or accommodate asset owners’ financial and ‘impact’ objectives.
• Secondly, approaches to sustainability are linked to economic activities and associated with innovation and behaviours, and therefore evolve over time. The materiality of Environmental, Social and Governance (ESG) factors depends on economic policy orientations towards ESG activities’ impact. Any mandatory sustainability requirement, especially regarding investments, would turn ESG into a ‘tick the box’ compliance exercise.
The means of facilitating ESG investment should be carefully considered: strengthening transparency and choice provides more benefit than a prescriptive legislative approach.
We look forward to continuing our dialogue with EU policymakers to help shape a European sustainable finance strategy which works for citizens and our planet.