Making Sense of Sustainable Investing: What Asset Managers Should Know About Compliance with Financial Regulations and Alignment with Industry Standards | Morgan Lewis

The investment world is changing. Investors are recognizing the value of sustainable investing and are seeking to invest in sustainable investment approaches. In response to this increased demand, regulators and private organizations are promulgating a wide variety of new regulatory requirements and industry standards applicable to sustainable investing. Each new development requires investment managers to reevaluate whether they are meeting client expectations and industry regulation. The chart on page 6 shows a sampling of recent developments.

These milestones reflect the rapid growth in regulations and voluntary standards aimed at standardizing and harmonizing the sustainable investment market, particularly in Europe and North America. The common thread among these milestones is a recognition that the market lacks broadly accepted standards or even vocabulary to address questions such as how an investment product should be labeled, how to monitor that practices and processes are followed when executing a given strategy, and how to disclose and report results to stakeholders. Collectively, these industry efforts seek to provide investors and other stakeholders with greater transparency and visibility into all aspects of sustainable investing. The need for greater transparency is something that industry standard-setters have appreciated for quite some time and that regulators are increasingly addressing. Whereas a few years ago there were only a few sustainability-focused standards and regulations that investment managers were expected to monitor, there is now a wide array of competing guidelines, frameworks, and rules. This isn’t a step shift— it’s a sea change. And this change is only accelerating, with more standards under development and regulatory rulemaking in progress around the world. Many investment managers are understandably feeling overwhelmed by the pace and scale of change and wondering how they are going to be able to keep up with these evolving requirements. This is especially true for global asset managers with dozens of strategies operating in multiple jurisdictions, as well as for smaller managers with limited resources, to meet these evolving requirements.