The DVFA Sustainable Investing Commission participated in the recent consultation on the EU Renewed Sustainable Finance Strategy. Additional incremental measures in targeted areas are necessary to implement the Action Plan successfully, but the DVFA Sustainable Investing Commission believes that many significant developments have already been made. The DVFA Commission has identified a number of priority areas.
- In order to achieve the objectives of the EU Sustainable Finance Strategy rapidly, the DVFA Commission believes that a two-handed approach is needed. First, rewarding the shift of private capital to more sustainable investments and/or at the same time discouraging it from benefiting from potentially damaging activities. Next, providing the proper regulatory framework for pricing (i.e. the carbon price) and the appropriate taxation mechanisms will be essential prerequisites.
- The DVFA Commission believes that a data room for corporate ESG data could ease the implementation of the EU Action Plan, by improving access to data by financial market participants. The data presented should not suggest a qualitative or forward-looking assessment. A data interface should not replace ESG research houses but should increase the level of integrity and comparability of the required and standardised ESG data.
The DVFA Commission believes that ESG data is now more comparable and standardised than its reputation. The Commission took a position on this matter in the consultation and elsewhere (Take a look at: Guest distribution of Henrik Pontzen and Gunnar Friede). However, the expert, critical handling of multiple ESG ratings and the qualitative, conclusive overall assessment by the analyst remain indispensable for sustainable investing and underline the strength of the asset manager.
Ambiguities and occasional low data quality do not call into question the concept of sustainable investing, but rather are a mandate to investors to support the diversity of rating agencies. At the same time, investors should demand better measurement methods and, through dialogue with companies, sufficiently reliable and up-to-date data. It can also be a mandate to policymakers to better standardise data on key ESG indicators.
Nevertheless, the DVFA Commission is in favour of stronger regulation of sustainability reporting. As long as the disclosure of ESG data remains voluntary, the data disclosed by companies can potentially be positively biased. To date, hardly any jurisdiction holds companies and executives liable for false or misleading extra-financial data disclosed outside of regulated traditional financial reporting. As a result, most investors and analysts tend to discount reported ESG data and have less confidence in the quality of the ESG information provided. In addition, the infrequent and delayed disclosure of ESG reports compared to a company’s traditional financial reporting reduces usability. These issues need to be addressed.