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Laxman Pai, Opalesque Asia: Regulatory approaches to Environmental, Social and Governance (ESG) investing by pension funds are increasingly diverging between the U.S. and the European Union and the U.K. and could affect fund returns at some point, Fitch Ratings says.
The rating agency pointed out that, amid increased demand for responsible investment from institutional investors, policymakers in Europe and the U.K. are facilitating the integration of sustainability considerations into investment decisions. European regulators are also proposing that investment firms be required to consider the ESG preferences of retail clients when providing investment advice, Fitch noted.
In the U.S., the Department of Labor (DOL) has taken a more conservative stance on ESG investing, it said. The DOL recently proposed rules stipulating that employer-sponsored pension plans aren't designed for pursuing social goals.
"In contrast to the DOL's approach, regulation in the EU and UK promotes the integration of sustainability and ESG concepts into financial decision making, which has become a more common and/or formalized consideration for pension fund managers," the report explained.
While these different approaches are not expected to immediately affect ratings assigned to investment managers, pension funds, and/or the institutions sponsoring such plans, we anticipate they will translate into differing investment considerations, risks, and potential returns over the long...................... To view our full article Click here
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