On November 22, 2022, the U.S. Department of Labor (the “DOL”) published a regulation entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (the “Final Rule”). The Final Rule follows proposed rules regarding ESG investing and proxy voting by plan fiduciaries, issued on October 14, 2021 (the “Proposed Rule”) and amends prior regulations on the same topic issued by the DOL under President Trump in 2020 (the “2020 Rule”).

In the Final Rule, the DOL repeatedly emphasized that the regulation was primarily aimed at removing and remedying the chilling effect on ESG investing by plan fiduciaries created by the 2020 Rule. While the Final Rule takes a more permissive stance on the consideration of climate change and other ESG factors in investment decisions by plan fiduciaries than the 2020 Rule, the DOL cautioned that a plan fiduciary should not subordinate the interests of plan participants and beneficiaries to any collateral benefits (i.e., ESG objectives).

The Final Rule largely tracks the Proposed Rule, with a few notable exceptions summarized below.

Continue Reading DOL Finalizes Rule Regarding ESG Investing and Proxy Voting by Plan Fiduciaries

Interest in ESG investing continues to attract attention globally as policymakers and regulators around the world implement policies and regulations to direct or guide behavior and protect the interests of a wide range of stakeholders. Against this backdrop, we observe a rising challenge to so-called “woke capitalism”, particularly with the recent wave of anti-ESG sentiment

On August 24, 2022, Texas’ comptroller of public accounts released the list of financial companies subject to divestment by Texas state governmental entities unless the companies cease boycotting energy companies. This Legal Update provides further detail on this action and other states’ anti-ESG provisions and notes the risks for the investment industry and investors.

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The sustainable investing market has witnessed remarkable growth. At the same time, the field has been challenged by a lack of consistency in identifying what, exactly, makes an investment “sustainable”.  Sustainability taxonomies (or classification systems) have been developed by governments, international bodies and non-governmental organizations to help identify specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability.  Many of these taxonomies refer to or emulate the EU Taxonomy, widely regarded as the most developed system for sustainable finance investment classification and measurement.

Continue Reading ICMA Identifies Usability Challenges – and Recommends Action – for Implementing the EU Taxonomy

The sustainable investing market is witnessing remarkable growth: since 2018, annual cash flows into sustainable funds have increased tenfold. Now, more than ever, investors and asset managers alike seek sustainable products and strategies offering robust financial returns. The field, however, has been haunted by greenwashing claims and a lack of consistency in identifying what, exactly, makes an investment “sustainable”.

Sustainability or “green” taxonomies developed by governments, international bodies and non-governmental organizations (NGOs) can help resolve these challenges and inconsistencies by identifying specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability. These systems can cover the full spectrum of sustainability topics, from achieving acceptable levels of greenhouse gas emissions to compliance with certain human rights standards. Among other benefits, sustainability taxonomies can:

  • assist investors, asset managers and asset owners in identifying sustainable investment opportunities and constructing sustainable portfolios that align with taxonomy criteria;
  • drive capital more efficiently toward priority sustainability projects;
  • help protect asset managers against claims of greenwashing by providing an independent benchmark for the sustainability performance of investments; and
  • guide future public policies and regulations targeting specific economic activities based on taxonomy criteria.

In this series of Blog Posts, we first provide a brief overview of some of the key existing and developing taxonomies around the world. We then set out our analysis of the ways asset managers are already leveraging taxonomies in their businesses based on a review of publicly available responsible investment reports.  Finally, we highlight certain challenges that asset managers may encounter as these systems develop and interest in sustainable investing continues to grow.

Continue reading this Part III to understand some of the taxonomy-related challenges that asset managers may encounter. You can find Parts I and II here and here.

Continue Reading Leveraging Taxonomies: How Asset Managers Are Using New Sustainability Classification Systems – Part III

The sustainable investing market is witnessing remarkable growth: since 2018, annual cash flows into sustainable funds have increased tenfold. Now, more than ever, investors and asset managers alike seek sustainable products and strategies offering robust financial returns. The field, however, has been haunted by greenwashing claims and a lack of consistency in identifying what, exactly, makes an investment “sustainable”.

Sustainability or “green” taxonomies developed by governments, international bodies and non-governmental organizations (NGOs) can help resolve these challenges and inconsistencies by identifying specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability. These systems can cover the full spectrum of sustainability topics, from achieving acceptable levels of greenhouse gas emissions to compliance with certain human rights standards. Among other benefits, sustainability taxonomies can:

  • assist investors, asset managers and asset owners in identifying sustainable investment opportunities and constructing sustainable portfolios that align with taxonomy criteria;
  • drive capital more efficiently toward priority sustainability projects;
  • help protect asset managers against claims of greenwashing by providing an independent benchmark for the sustainability performance of investments; and
  • guide future public policies and regulations targeting specific economic activities based on taxonomy criteria.

In this series of Blog Posts, we first provide a brief overview of some of the key existing and developing taxonomies around the world. We then set out our analysis of the ways asset managers are already leveraging taxonomies in their businesses based on a review of publicly available responsible investment reports.  Finally, we highlight certain challenges that asset managers may encounter as these systems develop and interest in sustainable investing continues to grow.

Continue reading this Part II for our analysis of how asset managers are already leveraging taxonomies. You can find Parts I and III here and here.

Continue Reading Leveraging Taxonomies: How Asset Managers Are Using New Sustainability Classification Systems – Part II

The sustainable investing market is witnessing remarkable growth: since 2018, annual cash flows into sustainable funds have increased tenfold. Now, more than ever, investors and asset managers alike seek sustainable products and strategies offering robust financial returns. The field, however, has been haunted by greenwashing claims and a lack of consistency in identifying what, exactly, makes an investment “sustainable”.

Sustainability or “green” taxonomies developed by governments, international bodies and non-governmental organizations (NGOs) can help resolve these challenges and inconsistencies by identifying specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability. These systems can cover the full spectrum of sustainability topics, from achieving acceptable levels of greenhouse gas emissions to compliance with certain human rights standards. Among other benefits, sustainability taxonomies can:

  • assist investors, asset managers and asset owners in identifying sustainable investment opportunities and constructing sustainable portfolios that align with taxonomy criteria;
  • drive capital more efficiently toward priority sustainability projects;
  • help protect asset managers against claims of greenwashing by providing an independent benchmark for the sustainability performance of investments; and
  • guide future public policies and regulations targeting specific economic activities based on taxonomy criteria.

In this series of Blog Posts, we first provide a brief overview of some of the key existing and developing taxonomies around the world. We then set out our analysis of the ways asset managers are already leveraging taxonomies in their businesses based on a review of publicly available responsible investment reports.  Finally, we highlight certain challenges that asset managers may encounter as these systems develop and interest in sustainable investing continues to grow.

Continue reading this Part I for a better understanding of existing and developing taxonomies around the world. You can find Parts II and III here and here.

Continue Reading Leveraging Taxonomies: How Asset Managers Are Using New Sustainability Classification Systems – Part I

The sheer volume of capital flows into sustainable, or ESG-focused, funds and products over recent months reflects the rapidly increasing number of investors with ESG-related preferences, or demands, when selecting those investments.  Evaluating, and comparing, the ESG credentials of different investment products presents significant difficulties, however, in circumstances where information and disclosures about those products – and even the terminology used – are, at best, inconsistent, and often incomplete; and, at worst, may attract accusations of “greenwashing”, by using marketing materials to mislead investors about the ESG approaches used in their products.

Continue Reading The CFA Institute releases Global ESG Disclosure Standards for Investment Products