Sustainable investment growth presents challenges for fund boards

Thursday, 13 October 2022: A new report commissioned by the First Sentier MUFG Sustainable Investment Institute highlights the governance challenges facing fund boards due to the rapid evolution of sustainable investment. 

The report entitled ‘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.

Key report findings include:

• fund boards are being required to consider an increasing level of regulatory scrutiny but at the same time lack clarity from regulators on their fund board oversight responsibilities in relation to sustainable investment
• variation in definitions of sustainability as well as fast evolving regulatory requirements leaves fund boards questioning the expertise needed to ensure robust fund oversight
• some fund boards have a low involvement in oversight of fund performance against sustainability objectives or characteristics
• fund boards often do not receive any management information on fund performance against sustainability objectives for funds which have such features in their mandates.

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

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.

It provides practical actions within these four focus areas to support fund boards and outlines management information (MI) to facilitate oversight of sustainable investment funds.

Brandon Horwitz, Senior Adviser and Non-Executive Director, Fund Boards Council says: “A lot of attention has been paid to how sustainable investment funds are described to investors, with relatively less focus on the important role which fund boards play in overseeing that these funds ‘do what it says on the tin’. At the end of the day, the buck stops with the fund board. This report will help fund board directors become aware of their responsibilities and equip them with practical ways to discharge them.”

A virtual meeting on the findings of the report will be held on 13 October 2022 at 2pm BST and is open for registration here.

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About First Sentier MUFG Sustainable Investment Institute

The First Sentier MUFG Sustainable Investment Institute is jointly supported by First Sentier Investors and Mitsubishi UFJ Trust and Banking Corporation, a consolidated subsidiary of MUFG. The institute aims to help increase awareness and encourage action on important but under researched and emerging ESG-related issues. It will publish research on topics that can advance sustainable investing. An external academic advisory board informs the institute’s research agenda and ensures its publications meet high standards of rigour.

For more information, visit firstsentier-mufg-sustainability.com

About Fund Boards Council (FBC)

FBC is an organisation exclusively focused on fund governance, promoting examples of excellence from the asset management industry where we find them, offering guidance, consultancy and training to firms who need our help.

We actively support fund boards in delivering greater value, improved transparency and better governance for their investors. FBC has extensive understanding of the intricacies and nuances of fund governance and its role within the wider governance structure of investment management firms.

Through internal expertise, industry advisers and key relationships with regulators, we have our finger on the pulse of the needs of fund boards and provide unique proprietary insight and support for fund boards and the senior executives who work closely with them. Our unique singular focus on fund governance means we can support our corporate members and clients with access to unparalleled insight, latest thinking and deep expertise to help them address the challenges their fund boards are grappling with.

For more information, visit https://fundboards.org/about/

About First Sentier Investors

First Sentier Investors manages more than £123.0 billion in assets (as at 30 June 2022) on behalf of institutional investors, pension funds, wholesale distributors, investment platforms, financial advisers and their clients worldwide.

The firm operates as a standalone global investment management business with offices across Europe, the Americas, and Asia Pacific. First Sentier Investors’ expertise spans a range of asset classes and specialist investment sectors focused on delivering sustainable investment success based on responsible investment principles. First Sentier Investors is a signatory to the UK Stewardship Code.

Formerly known as First State Investments, the firm was acquired from the Commonwealth Bank of Australia in August 2019 by Mitsubishi UFJ Trust and Banking Corporation, a wholly-owned subsidiary of Mitsubishi UFJ Financial Group, Inc.

For more information, visit www.firstsentierinvestors.com

About MUFG

Mitsubishi UFJ Financial Group, Inc. (MUFG) is one of the world’s leading financial groups. Headquartered in Tokyo and with over 360 years of history, MUFG has a global network with approximately 2,400 locations in more than 50 countries. The Group has about 170,000 employees and offers services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing. The Group aims to “be the world’s most trusted financial group” through close collaboration among our operating companies and flexibly respond to all of the financial needs of our customers, serving society, and fostering shared and sustainable growth for a better world. MUFG’s shares trade on the Tokyo, Nagoya, and New York stock exchanges.

For more information, visit mufg.jp/english

About the Trust Bank

Mitsubishi UFJ Trust and Banking Corporation, as a core member of MUFG, provides its customers with a wide range of comprehensive financial solutions leveraging unique and highly professional functions as a leading trust bank. Such financial solutions include real estate, stock transfer agency, asset management and investor services, and inheritance related services, in addition to banking operations. We aim to realize our vision to be the trust bank that creates "a safe and affluent society" by always supporting our customers' and society's challenges based on Trust, and thus created a new key concept: "Create a Better Tomorrow".

For more information, visit tr.mufg.jp/english

Important information

In the UK, issued by First Sentier Investors (UK) Funds Limited which is authorised and regulated by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB number 2294743.

In the EEA, issued by First Sentier Investors (Ireland) Limited, which is authorised and regulated by the Central Bank of Ireland. First Sentier Investors (Ireland) Limited is registered in the Republic of Ireland, No: 629188. Registered offices: 70 Sir John Rogerson’s Quay, Dublin 2, Ireland.

Elsewhere, issued by First Sentier Investors International IM Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registered number 122512). Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB number SCO79063.

First Sentier Investors entities referred to in this document are part of First Sentier Investors a member of MUFG, a global financial group. First Sentier Investors includes a number of entities in different jurisdictions. MUFG and its subsidiaries do not guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk including loss of income and capital invested.