It’s been hard to miss the visibility and impact of the European Union’s Sustainable Finance Disclosure Regulation (SFDR) over the last few years. Now, the UK is adding its Sustainability Disclosure Requirements (SDR) to the regulatory mix. While the aim of SDR is intended to be different, it is evident that the approach has been influenced by the implementation of SFDR.
SFDR was intended as a reporting requirement, yet in practice it has been largely viewed by the investment community as a type of label for sustainable finance products. It was expected to increase transparency, but investors are still finding it challenging to compare funds under SFDR. Two issues in particular stand out. First is the lack of an agreed methodology for calculating the sustainable investment share (the percentage of a fund considered to be sustainable according to SFDR). Second, the necessary thresholds for sustainable investments in funds that fall within SFDR Article 8 and Article 9 categories are not defined. The diverging approaches applied by asset managers have resulted in less transparency for investors.
The UK’s proposed SDR differs from very clearly being a labelling regime. It includes detailed criteria for its three proposed labels – Sustainable Focus, Sustainable Improvers and Sustainable Impact. This clarity will aid the comparability of products for the benefit of clients and distributors.
Recognising the transition to green
Perhaps the highest profile element of the SDR proposal is the Sustainable Improver category. It is the first regulatory approach to provide guidance on “getting to green” rather than being green. At a time when measuring sustainability continues to evolve, this label is a potential game-changer for investors as transition can now be a strategy in itself.
It also aligns with recent enhancements to our investment tools at Allianz Global Investors, including:
Our key performance indicator-based (KPI) approach – a new sustainable product category for us – can help investors to embed a steady year-on-year improvement for a given sustainability KPI, for example, scope 1 and scope 2 greenhouse gas emissions, or emissions intensity.
We also offer a net-zero alignment toolkit, which aggregates corporates’ willingness and ability to meet net-zero targets as well as their implementation of those targets.
Over the course of next year, we expect rising investor demand for new KPIs across the themes of planetary boundaries, which focuses on life in a higher temperature world; and inclusive capitalism, which addresses the issues of living equitably with higher temperatures and an evolving global economy.
Sustainability regulation is complex with diverging approaches from policymakers. We expect this to be the case through this year and into next year. While the industry is still some way from convergence on regulations, we appreciate the lessons learned from SFDR that have been applied to SDR, particularly the notions of transition and stewardship that are core to our own approach to active asset management.
Regulation | ~ 3 min read
Critical thinking on raw materials
Critical raw materials are essential to the clean energy transition and digital technologies, but global tensions have exposed weaknesses in the supply chain.
Thriving biodiversity is essential to basic human rights – such as the right to life, clean air and water, health, and adequate food and culture as enshrined in the International Covenant on Civil and Political Rights. How do we protect it?
Carbon markets enable companies to reduce their carbon emissions by trading them for purchased carbon credits or carbon offsets. But the role of these markets in decarbonisation has divided opinion, highlighting that change is needed.
Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced without express permission from Allianz Global Investors. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional/professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.
This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors UK Limited, authorised and regulated by the Financial Conduct Authority; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).