What are the regulations for ESG funds across different regions?
GICP Expert View / 17 April, 2023
Regulators are implementing or proposing regulations to address disclosure of environmental, social and governance factors for investment funds. In many cases these regulations and proposals tend to focus on establishing a fund labelling or classification system. In parallel, many are attempting to develop a set of disclosure and reporting guidelines to explain how ESG fits into the investment process. Regulators are hoping these new regulations will support their sustainable finance initiatives, as well as reduce ‘greenwashing’ associated with ESG related claims about the funds.
The table below shows the proposals, either current or in development, across US, Canada, Europe, Switzerland, UK, Hong Kong, Singapore and Taiwan.
| US | Canada | Europe | Switzerland | UK | Hong Kong | Singapore | Taiwan | |
|---|---|---|---|---|---|---|---|---|
| Main regulation(s) or proposal(s) | Investment Advisers Act of 1940 Investment Company Act of 1940 | ESG-Related Investment Fund Disclosure | SFDR RTS | Multiple guidance and self-regulations | SDRs and investment labels | Circular to management companies of SFC-authorised unit trusts and mutual funds, ESG funds | Circular No. CFC 02/2022: Disclosure and Reporting Guidelines for Retail ESG Funds | Financial Supervisory Securities SITC-1100365536 |
| Effective date(s) | Work in progress | July 2022 | SFDR: June 2021 RTS: January 2023 | Multiple effective dates Work in progress | Work in progress | January 2022 | January 2023 | July 2022 |
| Products in scope (selected) | 1940 Act Funds | Investment Funds | Segregated Mandates, Pooled Funds, UCITs, AIFs | Retail funds | Unit Trusts and Mutual Funds | Retail Funds | Mutual Funds | |
| Products not in scope | Structured products | Institutional funds | Institutional funds | |||||
| Fund classifications/ labels | Proposal: Integration fund ESG impact fund ESG-focused fund | Guidelines: ESG exclusions ESG best-in-class ESG integration and evaluation ESG thematic investing ESG related engagement and stewardship Impact investing | Article 6 Article 8 Article 9 | Proposal: Sustainable focus Sustainable improvers Sustainable impact | ESG fund Climate fund | |||
| Cross-region equivalencies | AMAS: Allows comparable international standards | Proposal: EU and US equivalency routes | EU equivalency routes proposed | EU A8/A9 funds recognized as ESG funds | ||||
| Fund naming rules | 80% of assets invested in the type of investment suggested by name | Fund's investment objectives are required to reference the ESG aspect included in the fund name | Name cannot be misleading Consultation in progress | SFC: working group in progress | 80% of assets invested in the type of investment suggested by name | Fund's investment objectives are required to reference the ESG aspect included in the fund name | Name cannot be misleading Proportionately reflect the ESG features Should not overstate or over emphasize the ESG features | |
| Minimum portfolio ESG coverage | 80% based on name | At discretion of manager but threshold needs to be disclosed Consultation in progress: Proposal of 80% threshold for ESG-related fund | At discretion of manager, but threshold needs to be disclosed | Two thirds | At discretion of manager but threshold needs to be disclosed |
Source: Fitch Ratings, ESMA, FCA, SEC, CSA, IOSCO, Swiss Federal Council, Hong Kong Securities and Futures Commission, FSC, MAS
Table reproduced with kind permission from Fitch Ratings
The Global Credit Certificate prepares individuals for the changing credit landscape. Chapter 12, “ESG in Credit” focuses specifically on ESG factors on the decision-making processes, business activities, long term performance and valuation. It also includes information on ESG reporting frameworks, standards and regulations. More information about GCC can be found here.
This article is a brief overview of the report ‘What investors want to know: ESG fund regulations across regions’, written by Fitch Ratings. You can view the full report here. Please note that a Fitch Ratings account is necessary to access the report.