ESMA’s Mission to Integrate ESG Risks and Factors into UCITS and AIFMD: Value Added or Additional Administrative Burden

Abstract

Environmental, social, and governance (ESG) factors are getting more and more important for the fund industry, not only for the management companies of the funds but also especially for the investors who become more sensitive to these kinds of aspects. This increasing importance has also been recognized by the European Commission, which officially mandated on July 24, 2018, the European Securities and Markets Authority to provide technical advice on how sustainability risks and factors should be integrated in European regulation. This article examines which approach the European Securities and Markets Authority suggests in order to integrate sustainability risks and factors in the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and the Alternative Investment Fund Managers Directive and how this is seen by the market, as burden or value added, and therefore will be in the interest of UCITS management companies, self-managed UCITS investment companies, Alternative Investment Fund Managers, and their associations and for investors in these products. <b>TOPICS:</b>ESG investing, portfolio construction, portfolio theory <b>Key Findings</b> • ESG factors are getting more important for market players, and there are still a lot of challenges ahead. • ESMA’s initiative was well received from the market and helps to close the gap. • Market participants mainly don’t see this initiative as administrative burden but more a value added.