PRI calls for more details on enforcement regime for UK SDR

The head of EU policy at the Principles for Responsible Investment has called for more detail on the enforcement regime for the UK’s sustainability disclosure regulations (SDR) as she set out what the influential investor initiative hoped to see from the new rules.

Speaking at Morningstar’s sustainable investment conference in Amsterdam on Wednesday, Elise Attal joked that the UK’s planned SDR was the one and only benefit of Brexit. The PRI, she said, was broadly supportive of the regime and its intended outcomes, although it was still waiting to see the full details of the regulation.

However, Attal said there were four “blind spots” in the proposed rules that the PRI was hoping to see addressed later this year when more details of the regime are due to be released.

Under currently released details, Attal said there is no information on the enforcement plan for compliance with the UK’s labelling regime. “There’s a question as well in terms of who is the judge,” she asked. “Is it only the market or is there a bigger role for regulators?”

The UK Financial Conduct Authority’s rules only focus on positive sustainability impacts, she added. “So far there is no proposal for advancing DNSH criteria… so there is a risk that some negative impacts negate the sustainability objective of the fund.”

Attal said the PRI was in favour of taxonomy-alignment being mandated, and said it was important that disclosure requirements are underpinned by evidence-based sustainability performance benchmarks. Under current proposals, investors with funds under the “focus label” can choose to align assets with a credible environmental or social standard including the proposed UK green taxonomy.

Finally, she said the group wanted the labelling standards to ensure that asset managers have to go beyond low-level ESG integration in their funds in order to qualify. “We need to see more incentives within the regulation to ensure that funds improve their sustainability credentials,” she said.

The FCA is set to publish its final policy statement on SDR by the end of the year. The final release has already been delayed twice as the regulator came to grips with the volume of feedback it received in the most recent consultation.

Attal also discussed market troubles with the EU SFDR, noting that while there had been widespread frustration with the regulation and issues remain, the PRI still viewed it as a “mini revolution”.

“It’s been mainstreaming sustainable finance… and it has forced market participants to better define the objectives and characteristics of their products.”