Document is a global survey of ESG regulations for asset managers. Asset managers operating in multiple countries are accustomed to adapting to different regulatory requirements. While the specific requirements and objectives may vary across jurisdictions, the universal message is that regulators want asset managers to say what they do and do what they say. Some regimes seek to achieve this through specific ESG labelling or other requirements, while others currently rely on existing rules prohibiting fraud and material misrepresentation. The publication provides an overview of the global ESG regulatory landscape to help managers think strategically about how they can navigate the changing environment and effectively approach their business activities across different regions. The document covers the regions: Americas (United States), Asia (Hong Kong, Japan and Singapore), Australia and Europe (European Union and United Kingdom).

America (United States)

• Applicable rules: There is currently no formal ESG-specific rule for funds and advisors at the federal level. However, existing federal laws and rules prohibiting materially misleading statements and previous SEC staff guidance set limits and standards. Advisors are also subject to Rule 206(4)-1 (Marketing Rule) under the Investment Advisers Act of 1940, which is intended to prevent false or misleading advertising by advisors, including the private funds they manage. Funds and advisors are bound by existing requirements regarding material misrepresentations and omissions, as well as accurate reporting.
• Required/suggested labels or categories: There are currently no mandatory labels or categories for funds or asset managers in the United States. The 2022 ESG Proposal included a new disclosure taxonomy for registered funds and advisors focusing on “Integrative Funds,” “ESG-Oriented Funds,” and “ESG-Related Funds,” but the future of these changes and their enforcement may be in question as the SEC voted to delay their effectiveness.
• Disclosure and reporting requirements: There are currently no specific laws or regulations regarding ESG disclosures for funds or advisors. However, there are proposed rules, such as the ESG Proposal of 2022, which would introduce a new ESG taxonomy and require disclosure and reporting of certain information about the use of ESG factors. The Names Rule requires a fund with a name that suggests an ESG-related investment program to disclose how it defines the terms and adopt a policy of investing at least 80% of its assets in investments implied by its name. However, the effectiveness of the Names Rule changes has been postponed.
• Application to offshore funds: Non-US funds can only be offered in the United States through private placement. The document does not say whether existing or proposed rules apply equally to offshore funds sold in the US, other than a general ban on misleading statements.
• Rules for investors: The document does not provide any specific rules for retail investors. It states that institutional investors who own or control more than 5% of an issuer's voting securities must file with the SEC.
• Other actions/initiatives: Federal and state lawmakers have focused on asset managers’ participation in ESG-related group initiatives, such as Climate Action 100+ and the NZAM initiative. In November 2024, a group of states filed a lawsuit against three large asset managers, citing antitrust concerns arising from their participation in these initiatives. NZAM subsequently announced that it was suspending its activities in response to developments in the US and varying regulatory and client expectations in order to review its processes.
• On the horizon: Governments are expected to continue to issue guidance on ESG disclosure.

Asia (Hong Kong)

• Applicable rules: There are no specific laws in Hong Kong regarding the management of ESG factors and risks, other than those relating to funds (UCITS) authorised by the Securities and Futures Commission (SFC). From 20 August 2022, fund managers with management discretion over collective investment schemes are required to take climate risks into account in their investment and risk management and make relevant disclosures.
• Required/suggested labels or categories: There are no ESG-related investment designations or categories in place for SFC-authorised funds or private funds. A fund that does not meet the definition of a “Hong Kong ESG Fund” should not generally be called or marketed as ESG-related.
• Disclosure and reporting requirements: Hong Kong ESG funds are currently required to disclose various ESG-related information in their offering documents. This information includes the fund’s ESG focus, criteria for measuring the achievement of the objective, investment strategy, expected asset allocation and risks associated with the fund’s ESG focus. The fund or its manager must also disclose and update additional information on its website or by other means, including how the ESG focus is measured and monitored, details of due diligence, engagement policy and sources of ESG data. A Hong Kong ESG fund is required to conduct regular assessments (at least annually) of how it has achieved its ESG focus and disclose the results to investors (e.g. in annual reports). Fund managers with discretion over collective investment schemes must disclose how they take climate risks into account in their investment and risk management. Large fund managers (with assets of HK$1.4 trillion or more) may be subject to increased risk management and disclosure standards.
• Application to offshore funds: The requirements for SFC-authorised funds apply regardless of domicile. An offshore fund authorised by the SFC for sale to retail investors in Hong Kong must meet these requirements.
• Rules for investors: There is no requirement for intermediaries to determine a client's "sustainability preferences."
• Other actions/initiatives: The HKMA has published the Hong Kong Taxonomy for Sustainable Finance, which is designed to facilitate navigation between other taxonomies and provide practical guidance to fund managers on considering climate risks. The HKICPA has published its first two Hong Kong Sustainability Disclosure Standards (HKFRS S1 and S2), which are fully aligned with the ISSB standards. These standards are not yet mandatory unless required by other regulations (e.g. the HKEX listing rules). However, according to the 2024 roadmap, it is planned to require publicly accountable entities (including listed companies and large financial institutions) to provide sustainability disclosures in line with the Hong Kong standards from 2025. The MPFA has issued a directive requiring MPF (Mandatory Provident Fund) managers to improve their ESG-focused fund disclosure standards.
• On the horizon: The Cross-Agency Steering Group has set out key priorities for 2025 to support the growth of sustainable finance in Hong Kong, including developing a comprehensive sustainability disclosure ecosystem and strengthening Hong Kong’s role as a hub for sustainable finance and transition finance. It is also planned to publish an official Hong Kong Green Fintech Map in the first half of 2025.

Asia (Japan)

• Applicable rules: There are guidelines (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators) regarding disclosure and organizational resources for publicly offered ESG investment funds. Fund managers must determine whether their funds are “ESG funds” (referred to as Japan ESG Funds in this publication).
• Required/suggested labels or categories: No formal labels or categories have been introduced or proposed.
• Disclosure and reporting requirements: Japan ESG Fund managers are required to provide ESG-related information in the fund prospectuses (including detailed information on the key ESG factors considered, investment strategy, risks and restrictions). They must also disclose information on portfolio construction, benchmark indices and provide regular disclosures (e.g. in investment reports), including actual investment ratios and the status of achievement of ESG indicators.
• Application to offshore funds: The FSA stated that the ESG Guidelines generally do not apply to foreign investment funds managed outside of Japan. However, non-Japanese managers to whom asset management for Japan ESG Funds has been delegated by Japanese managers may be indirectly affected and may be required to comply with certain disclosure and reporting requirements.
• Rules for investors: The Code of Conduct for ESG Rating and Data Providers contains recommendations (not formal rules) for investors, including fund managers, regarding the use of ESG ratings and data. The Japanese government has adopted the “Asset Owner Principles,” which are not regulations but should be considered by asset owners in fulfilling their fiduciary duties, including sustainable investments.
• Other actions/initiatives: In March 2024, the FSA adopted the “Basic Guidelines on Impact Investment (Impact Finance)”, which set out the concepts and factors to consider when making “impact investments”. While these are not regulatory obligations in themselves, asset managers may wish to consider these elements. The FSA has also proposed changes to the Stewardship Code which would require asset owners who have adopted the code to disclose their holdings to companies upon request.
• On the horizon: The final Stewardship Code is expected to be published within a few months after an ongoing public consultation. The Japanese government is also considering updating the Companies Act to give companies the right to seek information.

Asia (Singapore)

• Applicable rules: The Monetary Authority of Singapore (MAS) issued MAS Circular No. CFC 02/2022 (Circular) in July 2022, setting out guidelines for ESG disclosure and reporting to mitigate the risk of greenwashing in relation to retail ESG funds. The Circular came into effect on 1 January 2023. A UCITS fund that complies with Article 8 or 9 of the EU SFDR is deemed to have complied with the disclosure requirements of the Circular. The MAS also published an information document in December 2024 setting out good disclosure practices that ESG funds may adopt.
• Required/suggested labels or categories: Title 4.1 of the CIS Code states that scheme names must be “appropriate and not unduly misleading or deceptive”. If an ESG fund wishes to use an ESG-related name, the ESG focus should be materially reflected in its investment portfolio or strategy. The MAS will consider factors such as whether the majority of the fund’s capital is invested in an ESG strategy (typically at least two-thirds of the net asset value). The MAS also expects fund managers to explain in the fund documents how their investments are materially focused on ESG. The MAS launched the Singapore-Asia Taxonomy for Sustainable Finance in December 2023, which sets out detailed thresholds and criteria for defining green and transition activities.
• Disclosure and reporting requirements: The Circular requires that the prospectus of an ESG fund lodged with the MAS clearly defines ESG-related terms and discloses information regarding the fund’s investment focus, investment strategy, reference benchmark and risks. The Circular provides practical examples of disclosure requirements for the prospectus and annual report. Annual reports of ESG funds must include information on how and to what extent the fund’s ESG focus has been met during the financial period.
• Application to offshore funds: The MAS will consider an offshore fund's compliance with its local regulations if the fund sponsor can adequately demonstrate this.
• Rules for investors: The document does not list any specific rules for investors.
• Other actions/initiatives: Singapore has initiatives to assist small and medium-sized enterprises (SMEs) with sustainability reporting. MAS is also developing an approach to regulating ESG rating and data providers. MAS has launched Project Greenprint, which aims to leverage technology to support green finance, including establishing data platforms and facilitating the acquisition and certification of climate-relevant data. Gprnt, the culmination of Project Greenprint, offers an enhanced digital solution for ESG reporting for businesses.
• On the horizon: The document does not list any new initiatives beyond those that have already been introduced or are in implementation.

Australia

• Applicable rules: Funds and asset managers are prohibited from making false or misleading statements and from engaging in unfair, misleading or deceptive conduct when offering or promoting sustainability-related products. These prohibitions are set out under the Corporations Act 2001 and the ASIC Act. Funds and asset managers must comply with certain disclosure obligations and guidance when preparing a prospectus for sustainability-related products offered to retail investors. ASIC has issued Information Sheet 271, which defines “greenwashing” and sets out nine questions for consideration. ASIC has increased enforcement of these obligations. In September 2024, Parliament passed legislation for mandatory climate-related financial disclosures, which will come into effect from 1 January 2025 for certain large Australian businesses and financial institutions.
• Required/suggested labels or categories: In June 2024, the Australian Treasury published the Sustainable Finance Roadmap, which outlines a timetable for achieving sustainable finance targets and plans to publish a sustainable investment product labelling regime for consultation in 2025, with a planned launch in 2027. The Finance Council (FSC) has issued guidance on product labelling (Guidance Note 44 and Information Sheet). While this guidance is strictly relevant to FSC members only, it influences industry standards and expectations. ASIC also published Report 791 in August 2024, which identifies interventions resulting from ASIC’s monitoring activities in relation to cases where underlying investments did not comply with published ESG investment filters and policies. Draft Regulatory Guide RG 000 Sustainability Reporting (Draft RG), accompanying CP380 of November 2024, details labelling requirements related to sustainability reporting.
• Disclosure and reporting requirements: Australia has disclosure requirements in legislation, ASIC regulatory guidance and industry guidance. The new legislation requires certain entities to comply with the Australian Sustainability Reporting Standards issued by the AASB. These standards include AASB S1 (voluntary) and AASB S2 (mandatory), which are broadly aligned with the ISSB standards. The reporting requirements include disclosure of climate-related risks and opportunities and metrics and targets including Scope 1, 2 and 3 GHG emissions. The new legislation includes limited exemptions for Scope 3 emissions disclosures and scenario analyses during the transitional period. If entities make incorrect disclosures, ASIC can order remediation.
• Application to offshore funds: ASIC’s disclosure obligations and expectations regarding greenwashing apply to all investment products offered to Australian investors, including those offered by offshore managers. The new legislation applies to entities that meet the required thresholds for Groups 1 and 2, or that are (or should be) registered corporations under the National Greenhouse and Energy Reporting Act 2007. This may also include foreign companies operating directly in Australia without an Australian subsidiary. However, the Draft RG clarifies that foreign companies registered under Div 2 Pt 5B.2 of the Corporations Act are not required to prepare a sustainability report or keep records.
• Rules for investors: APRA's Prudential Practice Guide, SPG 530 Investment Governance, sets out an expectation that RSE licensees will clearly communicate the extent to which ESG considerations influence their investment decision-making.
• Other actions/initiatives: ASIC has taken action on greenwashing, including fines for misleading claims about ESG filters, ambiguous language and mischaracterisation of investment products. APRA is also examining how best to integrate climate risk into its broader supervisory framework.
• On the horizon: The Australian Taxonomy of Sustainable Finance is expected to be published for voluntary adoption by mid-2025. ASIC will publish the final version of the Draft RG.

Europe (European Union)

• Applicable rules: The European Union has several key ESG regulations in place for asset managers, including the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy Regulation. The SFDR requires financial market participants (FMPs), including fund managers, to disclose information on the integration of ESG factors, risks and impacts at both the FMP and product levels. The EU Taxonomy Regulation establishes a classification system for environmentally sustainable economic activities. Financial products (e.g. funds) that invest in accordance with the EU Taxonomy Regulation are considered to be making environmentally sustainable investments. There are also organisational requirements for FMPs to manage sustainability-related risks. Firms subject to MiFID II must take sustainability risks into account when providing investment advice. The Corporate Sustainability Reporting Directive (CSRD) requires certain companies to report on a dual materiality basis, but does not yet apply to funds or most fund managers.
• Required/suggested labels or categories: Although the EU has not formally adopted ESG ‘labels’ or ‘categories’, in practice market participants refer to financial products according to the relevant disclosure obligations under the SFDR: ‘Article 6 product’ (without ESG strategy), ‘Article 8 product’ (with ESG strategy), ‘Article 8+ product’ (with ESG strategy and a minimum proportion of investments in line with the EU taxonomy or other sustainable investments) and ‘Article 9 product’ (exclusively investments in line with the EU taxonomy or other sustainable investments). ESMA has published guidelines for fund names containing ESG or sustainability-related terms, which set thresholds (typically 80% investments) and exclusions (e.g. companies dealing in controversial weapons or fossil fuels) for different types of names (e.g. ‘green’, ‘sustainable’, ‘impact’).
• Disclosure and reporting requirements: The SFDR and the EU Taxonomy Regulation set out four basic disclosure and reporting obligations: sustainability risks, main adverse impacts (PAIs), sustainable investments and environmental or social characteristics. FMPs are required to disclose whether and how they integrate sustainability risks into their investment decisions. All FMPs are generally required to comply with the PAI disclosure requirements at entity and product level, including disclosure on how environmental, social and employment PAIs are taken into account. Firms and products must provide information on quantitative impacts on an annual basis. All market participants must disclose at product level to what extent and how the relevant financial product has environmentally sustainable investments as its investment objective, or explain that it does not have such investments. Where a financial product promotes environmental or social characteristics, information must be provided regarding these characteristics, the indicators used to measure the achievement of the ESG strategy and the binding elements of the strategy.
• Application to offshore funds: The disclosure and reporting requirements under the SFDR also apply to non-EU asset managers and funds (e.g. an AIFM from a non-EU country that operates within the EU under national exemptions such as private placement). However, it is unclear whether a non-EU fund would have to comply with these obligations if it sells units to EU investors on an unsolicited back-order basis. Although the ESMA guidelines on fund names are silent on this, the market view is that they will apply.
• Rules for investors: There are no rules for retail investors. If the investor in a fund is the fund itself, the same disclosure rules apply to the investing fund. Insurance companies will have to take sustainability criteria into account as part of their risk management and disclosure obligations.
• Other actions/initiatives: The EU plans to regulate providers of ESG ratings and data.
• On the horizon: ESMA published its “Sustainable Finance Roadmap 2022-2024”, which includes initiatives such as the development of minimum sustainability criteria for financial products under Article 8 of the SFDR and the clarification of climate and environmental PAI indicators. The European Supervisory Authorities proposed the introduction of two voluntary product categories: “sustainable” and “transitional”, and the use of one or more sustainability indicators. The Platform for Sustainable Finance proposed a new product categorisation based on three categories. The European Commission adopted an “Omnibus” package to simplify rules and reduce administrative burdens, including changes to the CSRD and the EU Taxonomy.

Europe (United Kingdom)

• Applicable rules: The FCA has introduced an ‘anti-greenwashing’ rule which applies to all FCA regulated firms from 31 May 2024. This rule also applies indirectly to claims made by non-UK products managed by non-UK firms that rely on authorised UK distributors. Certain voluntary ESG-related labels are available for FCA authorised funds from 31 July 2024. From 2 December 2024, rules on names and marketing, as well as disclosure requirements for fund managers without a label, apply. The FCA requires certain asset managers and insurers to provide annual climate-related disclosures in line with the TCFD recommendations at both entity and product level. FCA authorised firms must comply with the FCA’s rules and policies, including the Principles and Consumer Duty. Other rules also apply to businesses selling to UK consumers, such as the CMA’s Green Claims Code and the ASA’s advertising requirements.
• Required/suggested labels or categories: The FCA finalised its Sustainability Disclosure Requirements (SDR) in November 2023. The SDR introduces an optional labelling regime for FCA authorised firms. The available labels are: Sustainable Focus, Sustainable Improvers, Sustainable Impact and Sustainability Mixed Goals. Products with the label must have a sustainability investment objective. With certain exceptions, at least 70% of the assets of a labelled product must be invested in line with its sustainability objective. Non-UK funds cannot use UK labels. From 2 December 2024, UK distributors of offshore funds with certain sustainability-related terms in their name must publish a notice that the product is established abroad and is not subject to UK labelling and disclosure requirements.
• Disclosure and reporting requirements: Existing disclosure requirements are set out in the ESG Sourcebook and require annual climate-related disclosures in line with the TCFD Recommendations at the entity and product level. The SDR introduces disclosure requirements at the product and entity level, including simplified disclosures for consumers and mandatory detailed disclosures in offering documents and sustainability reports. From 2 December 2024, firms using ESG-related terms in the name or marketing of an unlabelled fund must comply with the SDR disclosure requirements.
• Application to offshore funds: In general, the rules and proposed rules under the SDR do not apply to offshore funds marketed in the UK. However, the anti-greenwashing rule and the foreign product notification rules do apply indirectly.
• Rules for investors: There are specialist rules for entities such as pension schemes that require reporting and disclosure of climate risks. This may impact on funds and fund managers where such schemes are among their investors. The FCA is considering proposals to extend the scope of the SDR to portfolio management services for retail clients.
• Other actions/initiatives: The FCA is considering proposals to extend the SDR regime to portfolio management services and model portfolios for retail investors.
• On the horizon: The FCA plans to develop the rules and guidance over time, for example by adding specifics to the disclosure requirements under the SDR, as the ISSB develops its sustainability disclosure standards. The FCA has also expressed its intention to extend the regime to areas such as offshore products, financial advisors, listed issuers and the disclosure of transition plans. Further developments in relation to the UK Green Taxonomy are awaited.

Conclusion The global ESG landscape is highly diverse, with jurisdictions approaching ESG issues in their own ways and with their own objectives. This can pose challenges for asset managers seeking to roll out asset management services and investment funds globally. At this point, it is not possible to develop a single approach that applies to all jurisdictions, as some impose labeling requirements while others focus on disclosure, and only some regions have specific procedural requirements. Asset managers should ensure that their communications and marketing materials do not overstate their ESG attributes to avoid regulatory issues. Spring

The document is published on lexology.com