Sustainable investment - navigating the challenges for fund governance
The rapid evolution of sustainable investment has presented governance challenges for fund boards. Our report identifies those challenges and provides suggestions on how to strengthen their expertise and governance to maintain investor confidence, particularly against a backdrop of greenwashing concerns.
Our report highlights the governance challenges facing fund boards due to the rapid evolution of sustainable investment.
‘Sustainable investment – navigating the challenges for fund governance’ explores how fund board professionals are approaching the oversight of sustainable investment funds. Researched and authored by the Fund Boards Council, the report includes findings from interviews with 25 fund board directors across six jurisdictions – the UK, Ireland, Luxembourg, Japan, Hong Kong and Australia.
Why is sustainable investment presenting governance challenges?
Assets under management in sustainable investment funds have quadrupled in just 3 years, increasing from around US$0.7 trillion at the start of 2019 to almost US$3.0 trillion at the end of 2021[i]. This growth has been accompanied by a swathe of new regulations and approaches to sustainable investing, with variations in definitions and disclosure requirements.
While sustainable investment arguably does not change existing governance responsibilities, the research shows that the pace and breadth of development in this area presents challenges for fund boards.
What challenges are fund boards facing?
In this rapidly evolving environment, fund board directors are grappling with:
- an increasing level of regulatory scrutiny and how to mitigate greenwashing risks
- a lack of clarity from regulators on their expectations of fund board oversight responsibilities in relation to sustainable investments
- ensuring sufficient expertise in sustainable investing is available for robust fund oversight.
What aspects of fund governance are of particular focus?
The report looks at the impact of sustainable investment on four areas of fund governance:
- delivery of a fund’s commitment to investors
- compliance with laws and regulations
- risk management
- board composition and expertise.
The goal of this report is to help fund boards improve the way they oversee sustainable investment funds. It aims to:
- Explore: how sustainability considerations fit within fund board responsibilities
- Map: some of the challenges that fund boards face with respect to sustainability considerations
- Suggest: practical actions which fund boards can take to navigate these challenges, including management information to facilitate oversight of sustainable investment funds
[i] Source: Morningstar Global Sustainable Fund Flows: Q2 2022 in Review.