Moody's: EU disclosure rules could benefit asset manager ESG leaders

Asset managers that have already established sustainable investment products and reporting could benefit from new EU disclosure rules, according to Moody’s.

Earlier this month the European Parliament and EU member states agreed on one of the main pillars of the European Commission’s sustainable finance action plan, the so-called disclosure regulation for institutional investors.

Moody’s said asset managers that had already adopted environmental, social and corporate governance (ESG) disclosures before the release of the new rules could benefit from first mover advantage.

“For assets managers that have the appropriate infrastructure, expertise and product range, the rules will likely lead to increased inflows into sustainable strategies, given increasing demand for ESG products,” said the credit rating agency.

The new rules would increase investor confidence in the transparency of the ESG market, it said.

However, Moody’s estimated that asset managers’ costs could increase by 0.25%-2% depending on their ESG capabilities, with margins likely to come under pressure.

It said the need to update product offerings and prospectuses and explain how ESG factors were considered would come with “heavy one-off implementation costs”.

“The more stringent disclosure rules will require new systems or enhancements to current systems, potential new headcount, as well as the need to train salespeople to adequately explain the considerations,” the credit rating agency added.

The higher costs would weigh mostly on the profits of small EU-based asset managers without ESG expertise, according to Moody’s.

EU sustainable finance policy is developing quickly at present. Political agreement has also been reached on a regulation on low carbon benchmarks and last week the members of two EU parliamentary committees narrowly adopted an amended version of the so-called taxonomy proposal. A full parliamentary vote is scheduled for late May.

The body for EU member states has yet to adopt its position on the proposal, which is for a classification of environmentally sustainable economic activities.