European Union plans mandatory ESG information requirement for retail funds

New regulations to affect €10trn market

The European Commission plans to make it obligatory for retail fund managers to provide information about their products’ environmental, social and governance (ESG) approach under new proposals.
The idea has been welcomed by Eurosif, the European Social Investment Forum, and other European SIFs as a milestone for developing sustainability through European financial markets.
Under the plan, which covers so-called “packaged retail investment products” – at the core of a market worth up to €10trn – providers would have to indicate whether their offering “targets specific environmental, social or governance outcomes” and if so, provide an “indication of the outcomes being sought and how these are to be achieved”.
The indication is to be prominently displayed on new ‘Key Information Documents’ (KIDs), which are part of an initiative to make investment materials more comprehensible.
The KID will be a short, standalone document separate from marketing materials to be written in “clear, succinct and comprehensible” language.
“Increasingly retail investors are not only seeking financial returns with their investment decisions,” says the Commission, the executive arm of the European Union.“Often they also pursue other purposes such as social or environmental goals. In addition, information about non-financial aspects of investments can be important for those seeking to make sustainable, long-term investments.” But it says information on ESG is either difficult to compare or completely absent.

“Retail investors are not only seeking financial returns”

So the EU concludes it is “desirable to further harmonise the details of the information on whether environmental, social or governance issues have been taken into account, and if so in what ways”.
The proposal foresees that every manufacturer of investment products, such as investment fund managers, insurers and banks, will have to produce KIDs for each investment product.
François Passant, Executive Director of Eurosif, said: “Encouragingly, the Proposal requires that all packaged retail investment products, including those not portraying themselves explicitly as ESG or SRI products, disclose whether the investment product manufacturer targets specific ESG outcomes.”
The proposal will now be considered by the European Parliament and the ministerial-level Council, with the full proposal expected to be in place by the end of 2014. Link to relevant EU site