ESG (environmental, social and governance) investments are a new capital market paradigm whereby ESG data and policies are integrated into investments to improve risk management and financial performance. What started out as a niche now accounts for about half the volume of assets under management (AuM) in the financial market, or about US$45 trillion.
Sustainable finance has been gaining ground in the market, but has also raised some concern. Several studies indicate that the main obstacle to the continued growth of this market is the lack of standardisation of ESG financial products. The scarcity of regulation and precise criteria leads to asset managers being able to use the term ESG in an arbitrary and lax manner, hurting investors' expectations.
This initiative, led by the Nova SBE professor, aims to create a global ESG fund classification system, applied to all types of funds (equities, fixed income, PE, VC, hedge funds, among others). The aim is for this new classification system to be subsequently adopted by all member countries of the International Organization for Standardization (ISO), where Portugal is included, making it the global standard for the markets.
"The accelerated growth of sustainable finance has unleashed a wave of ESG products, methodologies and terms. The UK initiative aims to establish a new classification standard for funds presented, taking into account sustainable credentials or outcomes, with the ultimate goal of bringing symmetry and uniformity to the sustainable finance market," explains Rodrigo Tavares.
The process is expected to last around two months, running until March 2022. Before it is finalised, a public consultation will be carried out with the market, supported by a working group with representatives from global financial institutions, the British government and capital market associations.
The United Kingdom has become a leader in the ESG market. The initiative corresponds to the third phase of the 5-year Sustainable Finance Standardisation Programme, supported by the UK government.
