Fund boards grappling with sustainable investing governance

Yasmine Raso

Senior Journalist, Financial Newswire

17 October 2022

A new report from the First Sentier MUFG Sustainable Investment Institute has found fund boards have had to contend with several additional governance challenges in relation to sustainable investing.

Titled Sustainable investment – navigating the challenges for fund governance, the research was derived from interviews with 25 board directors based in the UK, Ireland, Luxembourg, Japan, Hong Kong and Australia.

The report said the rapid growth of the investing approach – with assets under management (AUM) going from US$0.7 trillion in 2019 to US$3 trillion in 2021 – has brought with it a plethora of new regulations and disclosure and reporting requirements.

The research also revealed that boards suffer from a “lack [of] clarity from regulators” on their oversight responsibilities, have struggled with the range of new definitions of terms relating to sustainable investing and have questioned the “expertise need to ensure robust fund oversight”.

“Some fund boards have a low involvement in oversight of fund performance against sustainability objectives or characteristics and fund boards often do not receive any management information on fund performance against sustainability objectives for funds which have such features in their mandates,” the report said.

The report also focused on four areas of fund governance in relation to sustainable investing, including:

• delivery of a fund’s commitment to investors
• compliance with laws and regulations
• risk management
• board composition and expertise

“We commissioned this research to understand the extent to which fund boards are considering sustainable investment as part of their governance obligations,” Velina Karadzhova, Head of the First Sentier MUFG Sustainable Investment Institute, said.

“Whilst arguably it does not change existing governance responsibilities, the research shows that the pace and breadth of development in this area presents challenges for fund boards.”