Sustainable Finance: Asset Management

The EU’s ambitious Sustainable Finance Action Plan was introduced by the European Commission with the objective of channelling private monies towards sustainable investments in order to support the transition to a carbon-neutral economy in accordance with climate-related targets set by it.

It has resulted in the introduction of a suite of legislation which have made material changes to the way in which EU fund management companies run their operations, the type of investment funds they offer and the way in which those funds are distributed within the EU.  

Since 2021, fund management companies have navigated the complex SFDR and EU Taxonomy frameworks which introduced specific disclosure obligations for of all funds, regardless of the investment strategy being implemented and the additional disclosure obligations imposed on those funds which implement an ESG-related investment strategy.  Alongside this, fund management companies have had to integrate the consideration of sustainability risk into their organisational structure, operational arrangements and risk management frameworks . They have also had to consider the implications of new sustainability preference requirements introduced under MiFID II on existing EU distribution strategies for funds under management.

Separately, certain fund management companies themselves also fall within the scope of the CSRD and are subject to detailed entity-level disclosure obligations under the Taxonomy Regulation, requiring a significant overhaul of existing reporting arrangements for in-scope firms.

A regulatory focus on eliminating greenwashing practices in the financial sector has also required fund management companies to assess and take appropriate steps to mitigate the risk of greenwashing arising within their organisations.

In tandem with the implementation of new frameworks to meet these regulatory obligations, these entities have also seen a significant increase in investor focus on responsible business practices and a demand for ESG-focused investment strategies.

Relevant Experience

Dillon Eustace advises and assists fund management companies, asset managers and funds in respect of the following matters:

• The establishment of new Article 8 and Article 9 Funds (ESG Funds) pursuant to SFDR and related pre-contractual, website and periodic report disclosure obligations applicable to those categories of funds.

• Categorisation (including recategorisation) of existing funds pursuant to SFDR (to include upgrading and downgrading of classifications).

• Naming conventions applicable to funds using ESG or sustainability-related terms in their names.

• Creation and documenting of a proprietary sustainable finance framework and related ESG policies.

• Assisting fund management companies  in complying with sustainability related requirements and obligations stemming from changes to the UCITS and AIFMD frameworks.

• Advising fund management companies and asset managers on the implications of MiFID II sustainability preferences on their distribution strategies.

• Supporting fund management companies in implementing a framework which mitigates the risk of greenwashing within their organisations.

• Assisting with responding to regulatory thematic inspections and the ESMA common supervisory actions (CSA) on sustainability-related disclosures and the integration of sustainability risks.

• Providing tailored training on ESG and sustainable finance related matters to senior management within fund management companies and asset managers and board of directors of  ESG Funds.

• Advising in-scope clients on ESG related reporting requirements, including those imposed under the EU Taxonomy Regulation and the Corporate Sustainability Reporting Directive.