The EU Sustainable Finance Disclosure Regulation creating the first disclosure obligations of activities conducted in 2024, by June 30, 2025, represents the pinnacle of the European framework surrounding impact investing. That is, a framework which requires asset managers to disclose how their activities connect with ESG values (if at all). These disclosures are made on websites, in prospectuses and in periodic reports. Their aim is to (a) increase transparency, (b) reduce ‘greenwashing’ and misinformation and (c) solidify the integrity of the sustainable investment product market. The overarching objective of impact investing is to fulfil the EU Commission’s political decision of attracting private funding to help Europe make the shift to a net-zero economy.
On the other side of the pond, however, ESG principles in have been hitting the rocks for quite some time. Perhaps the notion being unwittingly being equated with the controversial ‘woke’ movement, that has been causing turmoil amongst Americans, polarising business and politics, leading to an election result perhaps unforeseen by many.
In a recent development, Asset Manager giant, Vanguard, a massive asset manager based in the US, managing a whopping asset base worth 10.1 trillion USD, is giving retail shareholders the chance to vote in favour of putting profits above all else as reported to the Financial Times https://www.ft.com/content/f0516b4b-bdc3-4752-84f6-ee1dc9a7baff
The ‘profits-above-politics’ option is the response to feedback from investors who perceive ESG principles as excessive regulation at the expense of profit. The decision to allow shareholders to vote on the matter is certainly an ingenious way through the deadlock and polarity of progressive investment and profit-based investment; two concepts that shouldn’t necessarily pit against each other but could just as well co-exist. As FT reports, the ‘freedom-to-choose’ may deliver more than one messages to investors, since nearly half of Vanguard investors who expressed a preference, prefer that the fund company chooses for them.
And from a Cypriot point-of-view, although perhaps unrelated other than the parties’ involved, Vanguard Wellington Fund increased its stake in Bank of Cyprus to 4.75% of the total share capital of the bank. https://cyprus-mail.com/2024/11/19/bank-of-cyprus-executes-share-buyback-wellington-increases-stake/ As our most traditionally Cypriot bank gradually becomes more US-owned, US investment trends may become more relevant than ever before.
Navigating through conflicting interests in asset management can get daunting. A robust approach, in our view, begins with a simple yet comprehensive report on ESG topics adjusted specifically for the activities of a company in question. Matters of corporate governance such as Vanguard’s decision to allow shareholders to decide on issues that would traditionally be reserved for management, are important and Cypriot companies’ law as well as financial services law, allows for the same flexibility.
For more information on drafting, reviewing and delivering legal ESG due diligence reports, feel free to reach out to Stella Koukounis or Andria Trokkoudes at contact@solsiduslaw.com
