ESG: Looking Back to Move Forward

The Irish Funds Industry Association has published an article entitled „ESG: Looking Back to Move Forward“.
In this article, Lauren Anderson (Irish Funds) reflects on the introduction and expansion of ESG in corporate governance and business. She identifies key challenges and lessons learned, focusing on themes such as disparate ratings and harmonization. Anderson emphasizes the importance of consistent measurements, harmonized regulations, and clarity in guidance for compliance in order for ESG to be successful for consumers, the environment, society, financial markets, and regulators.
The foundations of ESG began with the 2006 United Nations Principles for Responsible Investment (PRI) and the 2030 United Nations agenda, which set the stage for the European Commission’s Sustainable Finance Action Plan (SFAP, 2018). This led to three new EU regulations: Sustainable Finance Disclosure Regulation (SFDR), Benchmark Regulation, and Taxonomy Regulation. The Irish Funds Industry Association has been actively involved in the development and implementation of these regulations.
One of the main lessons learned is the need for consistency and harmonization in ESG-related investments. The rapid growth of ESG products led to a lack of uniformity in measurements and ratings. Some recent efforts, such as the MSCI overhauling its ESG rating, have begun to address this issue. However, more work is needed to ensure common measurement practices and areas of focus.
European regulatory developments have targeted the issue of inconsistency in ESG regulation and reporting, but the results have been mixed. The SFDR was designed to harmonize ESG disclosure across Europe but was developed hastily, leading to unclear definitions and unintended consequences. Regulators are now investigating gaps and weaknesses in the existing regulations.
Looking forward, Anderson suggests that improving ESG strategies requires increased clarity in guidance for compliance. As new regulations are developed or revised, they must be clear and exhaustive to avoid confusion and misuse. The ultimate goal is to ensure that ESG addresses important environmental and social concerns while serving the interests of investors, consumers, and the markets.