Global trade association the International Capital Market Association (ICMA) has presented recommendations to help the sustainable fund market navigate regulatory challenges. In a recent paper, the association said that the implementation of the new regulatory landscape creates a “significant challenge” for the sustainable fund market. “Regulatory initiatives primarily in the EU and UK will have a structural impact on the sustainable fund market, the paper read. “It is already leading to a major reorganisation and rebranding of funds which will impact more than half of such funds in existence. The outlook is therefore a rebranded sustainable fund segment possibly alongside funds that may implement sustainability as a criterion but may not be marketed as such.” ICMA stressed that future regulation, particularly from the EU’s Sustainable Finance Disclosure Regulation review, should be “consistent to avoid disruption and/or discouragement of the sustainable fund market”, with many funds having been “substantially rebranded and reorganised because of recent initiatives”. The paper concluded that to avoid a “dramatic narrowing of the investable universe in sustainability”, EU regulators should not restrict the assessment of sustainable investments solely to the EU Taxonomy and remain open to other official and leading market taxonomies as well as established assessment tools and approaches. It also recommended that to grow transition-themed funds, terminology and investment strategies must identify more transition investments that cannot necessarily be accommodated by other sustainable fund categories. This could include those in the fossil and hard-to-abate sectors. Regulators may need to adapt their greenwashing prevention efforts to avoid deterring such investments, said ICMA.
