LONDON, Oct 19 (Reuters) – After years of complaints that there were no rules to determine what constitutes a “sustainable” investment, investors now fret there will soon be too many to navigate easily.
More than 30 taxonomies outlining what is and isn’t a green investment are being compiled by governments across Asia, Europe and Latin America, each one reflecting national economic idiosyncrasies that can jar with a global capital market which has seen trillions pour into sustainable funds.
The European Union will introduce its green investment taxonomy or common framework in January to help asset managers inside the bloc and make green activities more visible and attractive to investors.
The rules also aim to stamp out “greenwashing”, whereby organisations overstate their environmental credentials.
Britain, which hosts the COP26 climate change conference from Oct. 31, is set to finalise its own taxonomy next year but has already signalled it will not just replicate what is drawn up across the channel.
“We think there is probably quite a strong case for diverging from the EU in a number of areas,” said Ingrid Holmes, executive director of the Green Finance Institute and chair of a panel advising the UK government on its taxonomy.
SEEKING GLOBAL ALIGNMENT
While much of Britain’s taxonomy will likely dovetail with the EU’s, it will also take inspiration from Chile, given the UK stock market hosts a large number of miners, and from China’s agriculture-focused rulebook among others, Holmes said.
That may suit asset managers investing in UK assets and offering their funds to UK investors. But for those with a global approach, different taxonomies are a headache.
“We can live with coherence, but different jurisdictions having a patchwork of different regulatory standards and approaches adds costs, but it also increases investor confusion,” Chris Cummings, CEO of Britain’s Investment Association industry body, told a parliamentary hearing last month.
The scale of money going into sustainable investments is now “phenomenal” he said, but different rules are emerging when asset managers crave global alignment in standards.
Different rules also make it hard for asset managers to reap efficiencies through automated investment analysis, market participants said.
“If I’m in Malaysia or I’m in Australia or I’m in Japan or Canada and I’ve got a local reporting requirement with a different framework and I’m trying to also trade internationally then I’ve got duplicated costs,” said Nathan Fabian of the PRI, a United Nations-backed group which promotes responsible investment.
Some major markets – including the United States – are not expected to launch a nationwide taxonomy at all.
“The United States is unlikely to…
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