By Hari Bhambra

American asset managers with little connection to Europe might dismiss the European Union (EU)’s new sustainable finance regulations as irrelevant to their business. They would be mistaken to do so, however.

The regulations will have a tremendous impact on asset managers and firms operating outside the bloc. The EU might be the first to move on sustainable finance regulations, but its objectives are a harbinger of things to come around the globe.

To stay competitive in today’s borderless financial sector, everyone will have to take note of the zeitgeist. They’ll have to prove they are serious about sustainability and good governance, which may actually serve to enable them to capitalize on business opportunities—motivated by global concerted efforts of driving capital toward sustainable investments—that lie ahead. Investment with a purpose can have a real commercial value, and global investors will become the impetus to drive that change across the globe as a consequence of enhanced, consistent, and comparable disclosure.

Details, Details

The new rules for European financial products, advisers, and managers came into force on March 10 through the Sustainable Finance Disclosure Regulation (SFDR). They are designed to help financial institutions meet the goals of the Paris Agreement on climate change by driving capital toward environmental, social, and governance (ESG) and similar impact investing.

Specifically, the regulations will require financial market participants (FMPs) and financial advisers (FAs) within the bloc to integrate sustainability risks into their internal processes, including their portfolio management and product governance structures, and clarify how sustainability risks have been integrated into the respective remuneration policies.

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