A regular briefing for the alternative asset management industry.
Last month's "Budapest Declaration" heralded a "simplification revolution" for the European Union. The Draghi report and pressure from businesses are among the drivers for this apparent change of direction for EU policymakers – who seem recently to have been more focused on the apparent benefits of regulation than its cost. The European Council has now declared that "we must adopt an enabling mindset based on trust, allowing business to flourish without excessive regulation".
So, change is on the way. For sustainability professionals, the ongoing uncertainty about the future of European sustainability regulation is unfortunate – and no end is in sight. More proportionate and focused reporting burdens would be welcome, but there is little visibility for how or when they might appear.
At the recent PEI Responsible Investment Forum in London, and a private dinner for our clients, we explored some of the key sustainability challenges and what we might expect next year.
Last month's "Budapest Declaration" heralded a "simplification revolution" for the European Union. The Draghi report and pressure from businesses are among the drivers for this apparent change of direction for EU policymakers – who seem recently to have been more focused on the apparent benefits of regulation than its cost. The European Council has now declared that "we must adopt an enabling mindset based on trust, allowing business to flourish without excessive regulation".
So, change is on the way. For sustainability professionals, the ongoing uncertainty about the future of European sustainability regulation is unfortunate – and no end is in sight. More proportionate and focused reporting burdens would be welcome, but there is little visibility for how or when they might appear.
At the recent PEI Responsible Investment Forum in London, and a private dinner for our clients, we explored some of the key sustainability challenges and what we might expect next year. (To access the slides we used, click here.)
Top of mind, of course, were the looming obligations for many alternative asset managers and their portfolio companies to report under the EU's Corporate Sustainability Reporting Directive (CSRD). Scoping and materiality assessments are already underway for those who will need to report in 2026, while the frontrunners will need to issue reports next year. It's a daunting task, but an early start, good legal advice, and a pragmatic approach will significantly reduce the pain.
The Budapest Declaration did spawn one announcement that was the talk of the PEI conference: the Commission President mentioned at a press conference that an "omnibus" regulation" is planned. This will aim to reduce the burdens – but not dilute the ambition – of (at least) three EU sustainability laws: the CSRD, the Corporate Sustainability Due Diligence Directive (CS3D) and the Taxonomy Regulation.
A draft omnibus regulation is expected to be published in February, and details are emerging slowly. For smaller companies, at least, there is an expectation that the result will be a lower compliance burden. But the EU's legislative process is unpredictable, and the Commission will not be fully in control – so we can only guess how the process might proceed next year.
Another major talking at the conference was the EU's Sustainable Finance Disclosure Regulation (SFDR) – with asset managers still unclear what those reforms will bring. It has been apparent for some time that change – possibly dramatic change – to this landmark regulation is on the way and, given the contortions that many firms have performed to comply with the requirements of Articles 8 and 9, that is a concern. The European Commission is expected to publish proposals during the first half of 2025 for SFDR 2.0. It currently appears most likely that this will introduce new categories of "sustainable" and "transition" funds, and may dispense entirely with the Article 6/8/9 framework. Until the proposals land, this remains speculation.
What still seems reasonably clear (unless the omnibus regulation overtakes it) is that an interim change to the "principal adverse impact" reporting rules and the Article 8 and Article 9 templates will be finalised soon and become effective before the complete re-write.
Top of mind, of course, were the looming obligations for many alternative asset managers and their portfolio companies to report under the EU's Corporate Sustainability Reporting Directive (CSRD). Scoping and materiality assessments are already underway for those who will need to report in 2026, while the frontrunners will need to issue reports next year. It's a daunting task, but an early start, good legal advice, and a pragmatic approach will significantly reduce the pain.
The Budapest Declaration did spawn one announcement that was the talk of the PEI conference: the Commission President mentioned at a press conference that an "omnibus" regulation" is planned. This will aim to reduce the burdens – but not dilute the ambition – of (at least) three EU sustainability laws: the CSRD, the Corporate Sustainability Due Diligence Directive (CS3D) and the Taxonomy Regulation.
A draft omnibus regulation is expected to be published in February, and details are emerging slowly. For smaller companies, at least, there is an expectation that the result will be a lower compliance burden. But the EU's legislative process is unpredictable, and the Commission will not be fully in control – so we can only guess how the process might proceed next year.
Another major talking at the conference was the EU's Sustainable Finance Disclosure Regulation (SFDR) – with asset managers still unclear what those reforms will bring. It has been apparent for some time that change – possibly dramatic change – to this landmark regulation is on the way and, given the contortions that many firms have performed to comply with the requirements of Articles 8 and 9, that is a concern. The European Commission is expected to publish proposals during the first half of 2025 for SFDR 2.0. It currently appears most likely that this will introduce new categories of "sustainable" and "transition" funds, and may dispense entirely with the Article 6/8/9 framework. Until the proposals land, this remains speculation.
What still seems reasonably clear (unless the omnibus regulation overtakes it) is that an interim change to the "principal adverse impact" reporting rules and the Article 8 and Article 9 templates will be finalised soon and become effective before the complete re-write.
