| SDR arrives to mixed response The Sustainable Disclosure Requirements (SDR) regime is here and from today asset managers must ensure all sustainability-related claims made in relation to products and services are "fair, clear, and not misleading".
While this sounds reasonable and indeed a report from UKSIF and PwC looking at the practicalities of implementing the new rules finds that "most firms appreciate the opportunity presented to validate and demonstrate their sustainability leadership".
The report notes: "With a growing anticipation of increasing demand for sustainable investments in the market, firms were broadly of the view that the right approach to implementation could provide the opportunity for managers to design their reporting around what matters to their clients and what is best for their business."
But as we report this week, there are concerns that the SDR is something of a missed
opportunity.
Mikael Homanen, Head of Scientific Research, Innovation and Partnerships for independent data company The Upright Project, says that while well-intentioned, applying labels to products does not provide any real guarantee that they are really making a difference to environmental, social and governance issues.
He says SDR "does not go far enough by simply tackling how ESG funds are named and labelled", and he is pushing for "bolder, more significant leadership from the FCA to better understand the true impact of an ESG fund".
Homanen says it is more important that investors understand the material impact the funds in which they invest have on people and the planet, arguing that "Rather than sticking at the level of defining greenwashing as a naming and labelling issue, we should be looking at the specific metrics applied, thresholds and binding elements used to define impact intensity of an ESG fund".
This is a legitimate
point; in the absence of genuine data on which to interrogate the legitimacy of an ESG fund, investors may be at risk of falling foul of clever marketing materials. We have already seen issues with the EU’s Sustainable Finance Disclosure Directive which while not quite back to the drawing board, is subject to multiple criticisms about the lack of suitable data and is currently under consultation.
It would be frustrating for many stakeholders if the new rules fail to achieve their aim of encouraging capital towards funds that will make a genuine difference to the very real challenges – be they climate or otherwise – that the world currently faces.
In other news, predictions that investors would have a strong appetite for private market debt opportunities have come to pass, according to data from Houlihan Lokey’s MidCapMonitor.
The firm finds that UK sponsor-backed financing activity significantly increased the year to Q1
2024.
Driven by a strengthening M&A market and robust debt fund activity, UK mid-market financing activity significantly increased in Q1 2024, compared to the same period in 2023.
And the run is set to continue according to Patrick Schoennagel, Managing Director and Head of Sponsor Finance, Europe in Houlihan Lokey’s Capital Markets Group, who says: "As we look ahead to Q2 2024, a promising M&A pipeline suggests a potential resurgence in deal flow activity in the second half of the year, bolstered further by anticipated BoE interest rate cuts in the summer."
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Gill Wadsworth, Editor, Institutional Asset Manager
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