The EU and Singapore press ahead with new regulations and guidance on ESG


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As ESG continues its rise to the mainstream, regulators are responding with new rules, with both the EU and MAS recently issuing new rules and guidelines that should be adhered to.

With sustainability now at the leading edge of global concerns, regulators are responding with a raft of new rules, regulations and guidance that apply both to the investment community and to the underlying businesses themselves. We provide an update on the latest regulatory news in the ESG world.

Monetary Authority Singapore (MAS) issues Guidelines on Environmental Risk Management for Asset Managers, December 2020

The MAS issued guidelines for the asset management industry covering environmental risks, including materiality and associated responsibilities to ensure resilience of customers’ assets against environmental risk. Asset managers should implement robust environmental risk management policies and procedures and channel capital flows through ‘green’ investment activities

The guidelines:

  • apply to Capital Market License Holders for Fund Management (LFMC), Real Estate Investment Trust Management (REIT), Fund Management Companies (RFMC) under 5(a)(i) of the Second Schedule of the SF (Licensing and Conduct of Business) Regulation (Rg. 10.);
  • address proposed duties on boards and senior management with regards to environmental risk;
  • address matters of portfolio construction, investment research and investment monitoring;
  • highlight stewardship responsibilities, including to investee companies.

Recommendations for asset managers

Governance & Strategy

·         Board must set the tone and define the asset manager’s approach to environmental risk management for:

o    different asset classes; and

o    across different investment strategies.

·         Managers must have in place a risk management framework to identify, address and monitor the risks associated with customers’ assets that they manage which is commensurate with the size and scale and complexity of the assets – such risks include environmental risks to the extent that it is material to the assets managed.

·         Board and senior management should maintain:

o   effective oversight of the asset manager’s environmental risk management and disclosure;

o   oversight over the integration of environmental risk into the investment risk management framework; and

o   where environmental risks are material to the assets under management, a senior management member or a committee should be put in place to oversee the environmental risk.

Research and Portfolio Construction

·         Asset managers should embed relevant environmental risk considerations in their research and portfolio construction processes if they have assessed them to be material.

·         They should consider the potential impact of the relevant environmental risk on an investment’s return potential, both Physical and Transition risks should be considered at the individual/portfolio level.

·         Asset managers should implement appropriate processes and systems to monitor, assess and manage the potential and actual impact of environmental risks on an ongoing basis, where material.


Encourage a change in culture or stewardship to help shape the corporate behavior, including of investee companies, through engagement, proxy voting and sector collaboration.

Stewardship at investee companies

Asset managers should have proper documentation to support its engagement efforts, and report on their stewardship initiatives including engagement with investee companies:

·         raising environmental issues and awareness;

·         influencing behaviour of investee companies to better manage and mitigate environmental risk;

·         gathering information to supplement existing environmental risk disclosures from investee companies;

·         encouraging investee companies to provide relevant and timely environmental risk data/clearer disclosures.


Asset managers should disclose their approach to managing environmental risk, as well as the potential impact of material environmental risk, to customers, including quantitative metrics such as exposures to sectors with higher environmental risk with the TCFD referenced as one source for the development of appropriate disclosures.


European Supervisory Authorities (ESAs), January 7, 2021

ESAs issued a letter to the EU raising concerns about uncertainty in the interpretation of SFDR as the ESAs prepare the draft technical standards. The areas of priority are:

  • the application of SFDR to non-EU AIFMs (particularly when marketing a sustainable EU AIF) and registered (sub-threshold) AIFMs as per Article 3(2) AIFMD;
  • application of the 500 employee threshold for principal adverse impact reporting on parent undertakings of a large group, specifically whether the quota of 500 applies to EU and non-EU employees and applies to groups in EU and non-EU jurisdictions;
  • the meaning of promotion in the context of products which promote environmental or social characteristics;
  • the application of Article 9 of SFDR; and
  • the application of SFDR product rules to portfolios and dedicated funds.

Salient questions raised by the ESAs are as follows:

Meaning of promotion in the context of products which promote environmental or social characteristics (E&S)


1.      Will a product which includes the words ‘sustainable’, ‘sustainability’ or ‘ESG’ qualify as a product which promotes E & S characteristics?

2.      Would a reference to a product taking into account sustainability factors or sustainability risks be treated as falling within Article 8 of the SFDR?

3.      Would a minimum percentage of a portfolio be required to invest in E&S in order to qualify as having E&S characteristics?

Application of Article 9 SFDR- where a financial product has a sustainable investment as its objective


Clarification as to whether a financial product which has a sustainable objective needs to have a minimum investment in sustainable investments, or a maximum limit on investment in non-sustainable investments, to remain within Article 9?

Application of SFDR product rules to MIFID Portfolios and tailored financial products


In respect of portfolios or tailored financial products managed on a discretionary client by client basis, do the SFDR disclosures apply at the portfolio level or can they apply at the level of the standardized portfolio solutions?

In the event that SFDR applies at the portfolio level, how will issues of confidentiality be reconciled, particularly in respect of website disclosures?

European Fund and Asset Management Association (EFAMA) – January 7, 2021

EFAMA, as part of its review of the EU rules on AIFMs, indicated that there was no identifiable cause for tightening up standards for the quantification of principal adverse impacts only for AIFM. Such a discussion would take place once the technical standards were finalised and implemented. The integration of principal adverse impacts in the investment process will depend on the investment objectives and preferences of the fund investors.

Autorite Des Marches Financiers (AMF)

AMF issues communication on the relationship between EU SFDR and the AMF Position Document 2020-03 relating to non-financial approaches by collective investment schemes – January 20, 2021

The AMF released a communication to clarify the relationship between the SFDR and national requirements, and position recommendation DOC-2020-03 regarding information provided by collective investment schemes incorporating non-financial approaches.

DOC 2020-03 sets forth guidelines relating to non-financial criterion in collective investment schemes and the principle that the objective of consideration of non-financial criteria must be measurable and that this consideration must have a significant impact on the objectives defined by the market participant. Information relating to non-financial characteristics must be presented as a key aspect of communication, which would include the specific non-financial characteristics being included:

  • in the name of the collective investment product; or
  • in the KIID; or
  • in marketing materials.

Mentioning non-financial characteristics in the prospectus alone will not be considered as presenting key aspects of the communication.

The AMF noted that the SFDR has 2 new categories of products with non-financial characteristics:

  1. Products that promote environmental and social characteristics (Article 8);
  2. Products that have sustainable investment as their objective (Article 9).

Asset management companies should identify the products falling under Article 8 and 9 and apply the related disclosure requirements. AMF will not provide any further clarification at this stage.

Relationship with DOC-2020-03 & SFDR

The AMF communication sets forth the process for disclosure of collective investment schemes which integrate non-financial approaches as set out in position document 2020-03 (DOC 2020-03) seen as largely complementary to the SFDR disclosures.

The AMF set forth the following expectations with regards to SFDR and DOC 2020-03:

SFDR Article 6,8,9,10 disclosures



E&S characteristics and Sustainable investment


Non-financial criterion as a key aspect  of product communication

Sustainable investment objective- Article 9


Significantly binding approaches under DOC 2020-03

Process for Disclosures

Pre-contractual disclosures or website content under Article 6, 8, 9, 10 of SFDR apply independently of the categories defined in the DOC 2020-03

Where the product promotes E&S characteristics (Article 8)  or sustainable investments (Article 9), and in order to present the non-financial criterion as a key aspect of product communication, such disclosure must meet the requirements of DOC 2020-03

With regards to products having a sustainable investment objective (Article 9) this will be implementing ‘significantly binding’ approaches within the meaning of DOC 2020-03. AMF considers that an approach based on ‘significant commitment’ of the managed assets is not sufficient to comply with Article 9.

The sole inclusion of non-financial criterion in the management of investment schemes does not require prior approval from the AMF provided there is no substantial impact on the risk or return of the fund.

The process will be to provide disclosures to investors and update to AMF via the appendix to the product approval process.

Managers may modify their pre-contract disclosures defined by SFDR without AMF approval.

How can we help?

We have an entire division dedicated to ESG with expert knowledge of sustainability regulations, rules and guidance being introduced around the world. Our global team delivers a single-source solution and can assist with the development of applicable policies and procedures, including remuneration policies, investment decision making processes/ product governance processes, disclosure policies and ongoing integration of sustainability risks into existing frameworks. We encourage you to subscribe to our Regulatory Updates to keep up to date with global regulatory changes affecting your business

Contact us now to learn more about what we can offer


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