ESG’s regulatory struggle

Following Russia's invasion of Ukraine, ESG faces disruption, with assets in ESG funds declining during the first quarter of 2022. In addition to this, the share prices of fossil fuel companies increased, in part because of increased global energy demand.

However, some industry observers, like Martina McPherson, a visiting fellow at Henley Business School, claim that this is most likely just a brief hiccup. The European Union's regulations and rising investor demand have caused a fundamental shift in the ESG paradigm over the past five years.

McPherson recently participated in an ESG panel discussion at the Societe Generale Securities Services (SGSS) annual European Investor Summit in Paris. McPherson is also the head of ESG product management financial information for the Swiss stock exchange group SIX.

The difficulty of developing uniform standards for identifying "green" economic activities and investment projects was also discussed by the participants. This is because the EU Taxonomy runs the risk of quickly becoming obsolete as technology and solutions advance.

"It is already over 1,000 pages long and it cannot define everything that is green because the industry is constantly changing and innovating," said George Latham, managing partner at WHEB Asset Management.

"What is needed is greater transparency and clarity in language that people use, as well as better communication between investors and clients to allow for diversity of actions and processes."

By fLEXI tEAM