As ESG regulation in the EU and US continues to diverge, fund managers must navigate inherent tensions between the regimes and competing investor demands in order to maintain access to transatlantic capital.
By Matthew J. Chase, Betty M. Huber, Nicola Higgs, Axel Schiemann, Clare Scott, Anne Mainwaring, and Sophia Fossali
Key Points
- SFDR 2.0 marks another step in the EU-US divergence on sustainable finance and asset management ESG regulations.
- Heightened geopolitical tensions and strategic policy shifts in Europe have widened the scope of ESG, presenting defence-related investment opportunities for sustainability-focused capital.
- Greenwashing remains a concern for the EU, and SFDR 2.0 as proposed would set a significantly higher threshold to qualify as sustainable.
- The mandatory exclusions proposed under SFDR 2.0 would heighten the incompatibility risk between EU and US investors.
This report was prepared with the assistance of Henry Smith in the London office of Latham & Watkins.