Regulators urged to improve ‘sustainable’ funds criteria

Regulators of capital markets in Southeast Asia are having “a good start” in drawing up criteria for awarding “sustainable fund” status, but they may have to shoot for higher goals, according to HSBC.

In a research commentary penned by Wai-Shin Chan and Polo Heung, the global bank noted that the Asean (Association of Southeast Asian Nations) Capital Markets Forum or ACMF—of which the Philippine Securities and Exchange Commission (SEC) is a member —held a consultation on this matter earlier this month.

In particular, the ACMF intended to provide fund managers with requirements on disclosure and reporting that will be called Asean Sustainable and Responsible Fund Standards or SRFS.

Also, HSBC observed that such standards and requirements would not be legally binding, unlike similar existing conventions in the European Union and in Hong Kong.

New funds

In a notice to investment firms, fund managers and those who deal with such entities, the SEC said the standards would be applicable to new or existing funds that are related to ESG (environment, social and governance), SRI (socially responsible investment) and sustainability.

The SEC said that the ACMF had identified the establishment of such standards as a priority under the Roadmap for Asean Sustainable Capital Markets, which builds on earlier achievements such as the launch in 2017 of the Asean Green Bond Standards and in 2018 of the Asean Social Bond Standards and Asean Sustainability Bond Standards.

Under the Asean SRFS, funds will have to disclose their ESG investment strategies and objectives.

“We think the standards are positive for sustainability in Asean but will require further development in the future,” HSBC said.

Good start

“We believe this is a good start to enhancing the transparency and integrity of sustainable funds in Asean, despite the relatively low bar [for now],” the bank added.

For example, HSBC said the proposed SRFS do not require disclosure of asset allocation, engagement approach, associated risks, or impact measurement.

“Although the low threshold for a ‘sustainable fund’ might attract more asset managers to pursue sustainable fund practices, we think the standards will require tightening in the future [as in other jurisdictions],” HSBC said.

“With the rapid development of sustainable investments, we believe more regulators will focus on higher standards and avoid the perceptions of greenwashing,” it added, referring to false claims that a company’s business is environment-friendly. INQ