CFA warns changes needed to EU regulatory framework

July 12th, 2024

The Chartered Financial Analyst (CFA) Institute has urged the European Union (EU) to address the challenge of unreliable ESG data and mitigate greenwashing risks in its ESG regulatory framework.

A survey by the CFA Institute found 65% of its members in EU member states said the lack of reliable ESG data was the biggest challenge for asset managers in the implementation of the EU Sustainable Finance Disclosure Regulation (SFDR).

By comparison, 45% said increased confusion because of the quantity and technicality of the information that they receive before making an ESG investment decision was the biggest challenge for retail investors.

The institute recommended that the EU clarify language in the SFDR to improve disclosures and reduce greenwashing.

It also said the rules should use clear and consistent ESG terminology across the legislative framework to ensure uniform implementation and reduce rule interpretation variability.

The survey also revealed some confusion over Articles 8 and 9 of the SFDR, with 25% of respondents calling for the European Commission to overhaul the current approach and develop a more appropriate and precise EU-level product categorisation.

It noted that the EU has been advancing its sustainable finance agenda and taking steps to reduce redundancy in reporting by aligning the European Sustainability Reporting Standards (ESRS) and International Sustainability Standards Board (ISSB) standards.

However, the survey found corporate governance remains a challenge due to members states’ traditional authority over company laws. The institute recommended further measures for cross-border shareholder engagement and investor protection.

The survey also found that increased legislation and rising demand from European investors is pushing asset managers to consider ESG factors in their investment strategies.

Minerva’s blog focuses on the latest developments in ESG investing and stewardship. Minerva is a global provider of sustainable stewardship solutions with over 25 years of expertise. Minerva empowers investors by providing essential tools, including ESG research and data, enabling them to navigate the intricate landscape of stewardship and proxy voting, whilst ensuring their decisions are well-informed and aligned with sustainable principles.