Private Equity Law Report Quotes Zahabi and Niederkofler from Akin Gump Webinar on EU’s ESG Disclosure Requirements
Private Equity Law Report has quoted Akin Gump litigation partner Ezra Zahabi and investment management partner Barbara Niederkofler in the article “How ESG Disclosure Requirements Under the E.U.’s SFDR May Impact U.S. Fund Managers.” The article summarizes some of the key takeaways of a recent Akin Gump webinar examining the potential application to U.S. fund managers of Europe’s Sustainable Finance Disclosure Regulation (SFDR).
Niederkofler noted at the outset that global fund assets currently amount to roughly $61 trillion, with about half of those assets held in the United States and one-third in Europe. Europe, meanwhile, holds 81 percent of all ESG assets, putting it clearly ahead of the U.S. when it comes to investing in this area, she observed.
Zahabi explained that SFDR sits within the European Commission’s sustainable finance work stream and provides guidance focused on enhancing disclosure within the investment sector – and the financial industry more broadly – to encourage private capital to flow to sustainable economic activities. As for when SFDR might apply to U.S. managers, she stated that for any non-EU funds that are registered to market in the European Union, there must be at least product-level disclosures, along with potentially manager-level disclosures.
There are, however, other circumstances where U.S. fund managers may be affected by SFDR, Zahabi noted, including instances involving a reverse solicitation, or when U.S. managers have a sub-investment advisory relationship with an EU investment manager or when the U.S. manager uses a platform service provider Alternative Investment Fund Managers Directive.
Looking ahead, Zahabi predicted that SFDR’s specific criteria will become a key consideration for companies as they look to be satisfied that their products are conforming with internal ESG standards. Additional measures, she said, are likely to include compliance with international standards and measurements against any other relevant benchmarks.
For investors, Zahabi added, there will be two main branches of concern: Making sure investment managers are aware of the risks presented by climate change or other sustainability factors, and ensuring that limited partners are able to meet their own disclosure obligations and require information from their managers to do so.
Finally, Zahabi pointed out, while ESG issues are high on the regulatory agenda, they are also becoming more relevant for investors as part of their own investment philosophies. “We are certainly hearing that managers are receiving inquiries from European LPs in particular but from LPs in other places as well,” she concluded.
To learn more about EU ESG developments and risks and what business should know about them, click here to listen to an OnAir with Akin Gump podcast that Zahabi recorded earlier this summer.