ESG investing: Shaping the modern world of finance

warn them about investment policy changes.

It’s important to mention regulation as well, which adds another layer of complexity to the process. While multiple jurisdictions – including the EU, the UK and Canada – have already regulated ESG (or are planning to do so in the near future), the laws and rules around this field vary a lot.

Brexit is an excellent example here. Soon after the United Kingdom quit the European Union, regulators in the country announced that they started developing their own disclosure requirements for sustainable investments instead of utilising the new EU rules. While the FCA’s proposed framework will include five labels for categorising sustainable credentials, there are only three categories in the EU law.

While this gives a chance for UK regulators to create something new that may solve some of the inefficiencies of the EU ESG framework, it makes sustainable investments more complex. And such divergence doesn’t just lead to confusion when it comes to interpreting data but also increases the costs for shareholders.

ESG: a promising trend that still needs some work

Regarding what we discussed in this article, it is easy to figure out that even such a good intention to improve public responsibility and build a sustainable future can come with downsides.

Due to the lack of universal regulation (in fact, it is a little similar to the crypto market’s regulatory state) and a standard way to measure performance, investors face increased risks, especially when it comes to evaluating ESG stocks. At the same time, businesses have to consider numerous factors to fulfil the needs of different stakeholders.

However, while this instrument is not perfect, we must finalise it and carefully implement it, taking into account all the risks and consequences of such an innovation.

Maryna Chernenko is managing director of UFG

Capital, a Cyprus-based alternative investment fund manager (AIFM) company that

provides private and institutional investors with management services through

investment funds.