Europe’s biggest asset managers are failing to disclose enough useful information about their engagement activities under the Sustainable Finance Disclosures Regulation (SFDR), according to analysis by campaign group ShareAction.
ShareAction assessed the disclosures of 30 of the largest investors operating in the EU.The EU’s SFDR rules require fund managers to share information to back up claims made about the sustainability credentials of their financial products.
The campaign group found that “engagement was often discussed at a firm-wide level rather than linked to specific products” with around half of the 30 managers not explaining which sustainability issues their stewardship efforts sought to tackle.
This contrasts with the detailed disclosures about engagement made by the same asset managers outside their SFDR statements. More than two thirds of the sample published “detailed expectations for engagement” on climate and social issues, with 24 providing quantitative data on their activities.Ten provided a public list of all companies they engaged with by sustainability topic.
In terms of which engagement tools were used as part of the strategies, 25 managers sent private letters, 14 made public statements, 11 filed or co-filed shareholder proposals, and 11 asked questions at companies’ annual meetings. Nine asset managers refused to buy corporate debt, while two communicated sustainability-related conditions for their participation in primary-market bond issuance. Seven refused to buy new equity. Three pursued litigation.
“Our analysis of asset managers’ stewardship and engagement reports outside the SFDR framework, in the context of this research, often revealed substantial information on engagement policies and practices aimed at addressing harms among investee companies,” ShareAction’s research found. “This suggests that asset managers often have the relevant information at their disposal, but are not necessarily disclosing it in the content of the SFDR framework.”
EU should take a tougher stance
As a result, it is calling for the European Commission to take a tougher stance on engagement in the next iteration of the SFDR. The regulation is due to be overhauled later this year, with a public consultation scheduled to close on 30 May.
The Commission is expected to turn SFDR into a labelling regime, through which managers must assign their sustainability funds to specific categories.The categories currently being considered include ‘sustainable’ and ‘transition’ strategies.
“The disclosure of credible engagement strategies and outcomes should be a minimum requirement across all proposed SFDR product categories to demonstrate how financial market participants use their leverage in support of achieving the products’ objectives,” argued ShareAction.“In a transition product category, engagement should be mandatory – financial market participants should be required to engage with investee companies to advance their transition.”
The Commission has so far received 36 public responses to its call for evidence about the future of the SFDR.
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