EU rules support sustainable investment but are too confusing

Greenwashing and data concerns are preventing the market from reaching its full potential, CFA Institute study finds

A survey of EU-based CFA Institute members found that while EU regulatory action is driving sustainable investment across the board, significant challenges remain, namely concerns about greenwashing and unreliable environmental, social and governance data.

The study focused on the Sustainable Finance Disclosure Regulation and the EU Taxonomy Regulation, highlighting the difficulties investors face in terms of ESG disclosure and data reliability.

Despite the plethora of ESG data solutions available in the market, 65 percent of respondents said the lack of reliable data is a problem, while 45 percent said data collection is too expensive and they struggle to find the right staff for the job.

Josina Kamerling, head of EMEA regulatory affairs at CFA Institute, said in a statement that while there is a broad consensus that the EU regulatory system helps promote sustainable finance, “a similar percentage of respondents believe that EU actions are misleading and that the lack of reliable ESG data does not make it worthwhile to consider ESG issues in investment decisions.”

“This is a disturbing finding and regulators should take note of the views of those involved in investment,” Kamerling added.

The survey also found that retail investors find the volume and complexity of sustainability data confusing, which is exacerbated by the different disclosure requirements under Sections 8 and 9 of the SFDR.

More than a third of respondents believe the taxonomy has been “over-designed,” creating unnecessary complexity and confusion.

The CFA Institute recommends that EU regulators continue to pursue international sustainable investing agendas, but says the EU should better align taxonomies and disclosure rules with the needs of financial markets.

The Institute calls for clear and consistent ESG terminology across laws and regulations, and also says rulemakers should clarify fund categories within the SFDR.

Regulators are already addressing this last point: the ongoing review of the SFDR is expected to lead to a new regime that more closely resembles UK sustainability disclosure requirements.

You can read the full report here.