1,000 UK-based Asset Management firms managing £11trn for UK and global clients have just been put on notice regarding claims made around ESG and upcoming regulatory changes. This follows the proposal of the SEC rules and the evolving EU SFDR and proposed UK SDR regulation. Celent research has found investment in data enablement technologies can help solve some of the challenges around compliance with new rules.
The notice to the UK asset management community came in the form of a recent “Dear CEO” letter sent by the UK’s financial service regulatory, the Financial Conduct Authority (FCA), which sets out how the regulator intends to supervise asset managers. The 1,000 firms in the FCA’s focus range from large institutions to small retail investors with many UK asset managers being part of wider asset management groups that service clients worldwide
Celent has identified ESG as a key business trend driving technology investment in our 2023 Tech Trends Previsory report series. Our research around trends in ESG enterprise data management, which drew insights from data collected via interviews and survey with senior technology executives and chief data officers at institutional asset managers and asset owners, confirmed that one of the biggest challenges around ESG relates to poor data quality. Our findings confirmed that technology investment in data enablement (data management and data analytics) is needed to support clearly targeted outcomes based on explicit and transparent metrics.
Investment in technology to support this area continues to be important. Despite buyside margins under increased pressure and the industry seeing investment outflows in some areas, ESG continues to be a bright spot in Europe, Australia and Canada according to data from Morningstar European ETF Asset Flows report. Morningstar found that ESG ETFS attracted 65% of all flows into both ETFs and ETCs in 2022, up from an already impressive 53% in 2021. The report noted that sustainable funds account for 20% of European fund assets at the end of December 2022. Europe dominates the sustainable fund landscape with 83% of global sustainable fund assets as compared to the U.S. in second place at 11% (see chart below).
Quarterly Global Sustainable Fund Assets (USD Billion)
Celent research has identified several technology-related challenges related to data process (see below) for firms when offering ESG-related investment offerings.
When thinking about the recent action by the FCA, continued investor interest in ESG products and evolving UK and EU-based regulation it is clear capturing ESG opportunities will require keeping an eye on developments in Europe from both a regulatory and solution point of view.