Sustainability criteria pose corporate challenges
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Sustainability criteria pose corporate challenges

Corporates seeking to leverage sustainable investment opportunities continue to be restricted by the lack of reliable data on which to base their assessments.

Illustration: iStock

The adoption of tighter definitions of sustainable funds by the Sustainable Investment Forum has led to a fall in assets under management in the US. Even so, such assets still totalled more than $8.4 trillion.

And the Global Sustainable Investment Alliance’s latest industry review refers to a 20% increase in sustainable AuM across Canada, Europe, Japan, Australia and New Zealand over the last two years.

The need for clearer definitions and a wider understanding of what makes a sustainable asset ‘sustainable’ is obvious. Further developments can be expected as the EU’s Sustainable Financial Disclosures Regulation continues to evolve, alongside other global disclosure and labelling approaches, and as data availability and quality increases.

Tighter focus

The adoption of tighter definitions for sustainable funds offers considerable opportunities but also challenges.

Tighter criteria allow for better assessment of environmental, social and governance risks, which helps corporates focus on more precise targets and enhances performance while encouraging these companies to innovate to be more sustainable.

On the other hand, tighter definitions could limit the universe of investable assets, potentially leading to reduced diversification opportunities or higher costs due to increased competition.

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