ESG regulation is the ""biggest obstacle"" to successful fundraising in Europe

North American fund managers believe the regulatory environment is the ""biggest obstacle"" to successful fundraising in Europe, with European ESG regulation in particular being a deterrent. Ocorian conducted research with US and Canadian fund management executives from private equity, private debt, real estate, venture capital and infrastructure. The executives chose their top three challenges they faced in successfully fundraising in Europe. Nearly half of the chosen executives chose Europe's regulatory environment as their top three challenges at 49%. Behind that was issues around reporting at 38%, followed by liquidity profile at 37%. Furthermore, the study found that 99% of these fund managers said that European ESG regulation is a deterrent to North American alternative fund managers trying to raise capital in Europe. Around 36% believed the regulations were a 'huge deterrent'. Nearly all of these managers also agreed that it will become harder to launch new funds in Europe unless the funds have a strong ESG focus. With the European Union emissions trading scheme (ETS) requiring monitoring and reporting from the aviation sector in 2025, a greater demand lies ahead for airlines to meet ESG reporting requirements. In 2019, the EU introduced a transparency framework, the sustainable finance disclosure regulation (SFDR) which set out how financial market participants have to disclose sustainability information. The EU said the SFDR was designed to help investors make informed choices when putting their money into companies and projects. The SFDR was also designed to ""properly assess how sustainability risks are integrated in the investment decision process."" The goal of it was to attract private funding to help Europe shift towards a net-zero economy. The SFDR classification system deems a fund either an article 6, 8, or 9. Article 6 being a fund without a sustainability scope at one end and article 9 funds at the other, having sustainable investment as their objective. However, funds classed as article 8 fall somewhere in the middle. ""The landscape is marred by frustration and nervousness about liability,"" said Ocorian's Bovill Newgate funds practice lead Abi Reilly. ""The EU SFDR article 8 has become a catch-all for anything from impactful to barely considered strategies."" The EU says article 8 funds promotes environmental or social characteristics. Reilly continued: ""Investors crave and need clarity, yet find themselves drowning in ambiguity. Looming anti-greenwashing rules in the UK add to the unease – how much leeway will this give litigators and regulators? Uncertainty isn’t good for business."" The UK Financial Conduct Authority (FCA) put into force its anti-greenwashing rule on May 31, 2024. The new rule introduced labelling and sustainability disclosure requirements with product labels to help consumers understand what their money is being used for. In addition, the rule has naming and marketing requirements so products can only be described as having positive outcomes on the environment and/or society when those claims can be backed up.