Tuesday November 14 2017
News Source: Fund Regulation
Focus: Other
Type: General
Country: European Union
The European Commission has published a consultation on Institutional Investors and Asset Managers Duties Regarding Sustainability.
The duties of care, loyalty and prudence are embedded in the EU’s financial framework governing obligations that institutional investors and asset managers owe to their end-investors/scheme members.
These duties are the foundation of investment process. The implementation of these duties implies fulfillment of various obligations for asset managers and institutional investors that include, for instance, the duty to act in the best interest of beneficiaries/investors, with due care, skill and diligence in performing their activities, including the identification and management of conflict of interests. They are also required to act honestly, and ensure adequate and proportionate performance of their activities.
Although these duties are embedded in the EU financial legal framework, it appears unclear that they require institutional investors and asset managers to assess the materiality of sustainability risks (i.e risk relating to environmental, social and governance issues). Market practices indicate that institutional investors and asset managers generally understand these duties as requiring a focus on maximising short-term financial returns and disregard long-term effects on performance due to sustainability factors and risks. This can lead to misallocation of capital and might give rise to concerns about financial stability since markets can be vulnerable to abrupt corrections, such as those associated with the delayed transition to low carbon economies.
This consultation will help the Commission gather and analyse the necessary evidence to determine possible action to improve the assessment and integration of sustainability factors in the relevant investment entities’ decision-making process.
Please click on the above link for more information.