(Bloomberg) — Hedge funds are seizing the rising tide of opposition to European ESG rules as an opportunity to seek exemptions from some environmental, social and governance reporting requirements.
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At issue is whether alternative investment managers should have to disclose ESG data on assets they invest in on behalf of their clients, under the European Union’s Corporate Sustainability Reporting Directive. CSRD, which is designed to apply to all sectors, is currently the subject of intense debate as Germany and France seek to limit its scope. The EU’s financial services commissioner, Maria Luis Albuquerque, has said there’s room for adjustments in light of the criticisms.
It’s against that backdrop that the Alternative Investment Management Association, whose board includes Bridgewater Associates and Millennium Management, now says that its members should be exempt from reporting on clients’ assets.
“It’s creating an enormous burden on firms that really don’t have the sort of environmental or social footprint that a manufacturing company might,” said Adam Jacobs-Dean, global head of markets at AIMA, whose members oversee roughly $4 trillion of combined assets.
“And some of them won’t even have European investors or clients,” he said. “So who is the reporting for?”
The pushback from the hedge fund industry is the latest in a litany of complaints from business leaders and lawmakers who say ESG rulemaking in Europe has gone too far. They point to the bloc’s stagnating economy, and warn that competitiveness will slide further as President Donald Trump forces through a program of deregulation on the other side of the Atlantic.
Jacobs-Dean said hedge funds and private equity managers operating in the EU already provide the necessary data because they comply with the bloc’s ESG rulebook for the financial industry, the Sustainable Finance Disclosure Regulation.
Such efforts to resist ESG regulations have succeeded in the past. After heavy lobbying from banks, asset managers and insurers, the EU agreed last year to exclude those sectors from the full scope of the Corporate Sustainability Due Diligence Directive, which exposes firms to litigation risk if ESG violations are found in their supply chains.