Does the responsibility fall onto the shoulder of the portfolio managers making investment decisions, or is it the compliance and risk officers?
The truth, as unpopular is it may be, is that everyone is responsible.
There will always be a compliance officer ticking boxes, the culture of compliance starts at the investment coalface, with those investing capital on behalf of clients.
Everyone in asset management has a direct personal responsibility to meet the spirit of rules governing ESG investment.
There is a need for a common understanding and the correct interpretation of the various regulations, from the sustainable finance disclosure regulation to various fiduciary and best interest standards across different parts of the world.
Ultimately, investors are generally more inclined to invest in funds that are fully compliant with applicable regulations, especially in the ever-evolving world of sustainable finance, where investor appetite is increasing constantly.
There is no question that compliance serves as a critical factor in building trust and confidence between investors and fund managers.
Compliance often includes provisions that protect investors' interests, such as transparency requirements, accurate reporting, and safeguards against conflicts of interest.
Investors appreciate these protections, as they feel their rights and investments are being prioritised.
Therefore, whenever the next fiddly ESG reporting obligation is enforced, or the latest risk mitigation obligation is announced, instead of jumping on the ‘we need a lighter touch regulatory regime’ bandwagon, perhaps a more pragmatic approach would be to carefully assess how actually adhering to the rules can help improve the performance and popularity of a fund.
After all, funds are consistently looking to demonstrate professionalism and integrity to foster trust among current and potential investors.
Perhaps abiding by new regulation ensures asset managers are seen as forward-thinking, as opposed to looking to the past and longing for a return to the old way of doing things.
In the ESG arena, in which forward-thinking is the name of the game, investors that take this approach will have the best chance of ruling the market over the years to come.
Colin Clunie is head of EMEA operations at Clearwater Analytics
