ESG Remains a Central Topic for Institutional Investors and Fund Initiators in Europe

While a societal consensus on this question has yet to emerge, the picture is clear when it comes to sustainable investing: ESG is not dead! Just a few weeks ago, a Morningstar study showed that the assets in sustainable funds reached an all-time high of $3.2 trillion by the end of 2024, representing an 8% increase compared to 2023. Around one-third of our clients already have sustainable funds and are exploring additional opportunities in sustainable investment solutions – and interest from other clients is steadily increasing.

The shifts in global politics and public sentiment should not be downplayed, but the most compelling argument remains the economic viability and future-proofing of financial instruments. Especially in times of market uncertainty, investors need predictability and regulation that eliminates uncertainties while making sustainable financial products more comparable.

The EU is currently on the right track with its "Competitiveness Compass," which demonstrates how sensible regulation can enhance competitiveness. As part of this initiative, the proposal for the so-called Omnibus Regulation was presented at the end of February.

This could be a crucial first step in streamlining and improving the efficiency of sustainability-related regulations. The Omnibus Regulation aims to simplify sustainability reporting (CSRD), due diligence obligations (CSDDD), and the taxonomy, while reducing redundancies and harmonising different regulatory frameworks.

The parallel discussion on revising the Sustainable Finance Disclosure Regulation (SFDR) also raises hopes for further harmonisation of reporting requirements at the level of financial market participants and products.

Despite these planned changes, the EU rightly emphasises the importance of individual regulations but seeks to significantly reduce the reporting burden for companies through consolidation. It will take at least a year before the Omnibus Regulation comes into force, but many market participants are hopeful that further relief will follow.

The goal is not to weaken regulations, but rather to question whether investors and product providers truly need multiple, sometimes redundant, KPIs for measuring CO2 in their portfolios. There is an argument that it would be more effective to focus on fewer but well documented KPIs that clearly demonstrate impact and, most importantly, are comparable.

Overall, sustainability continues to depend on the level of ambition of individual actors. The higher the ambition, the greater the effort required for disclosure, particularly in terms of reporting data and risk assessment.

For this reason, harmonisation of legal requirements is crucial, especially for SFDR, MiFID, and IDD, which are not currently included in the Omnibus Directive. Pragmatic solutions are needed, as market participants cannot address information and data gaps on their own. Many investors have identified sustainability as an economically attractive factor, which they want to integrate into their investment strategies—even from a risk perspective. Reducing complexity and clarifying (reporting) requirements can mobilise more actors to accelerate the integration of sustainability into investment portfolios.

As an open platform, Universal Investment supports clients across all asset classes and must be able to adapt to different regulatory requirements to further promote and support sustainability. The Omnibus Regulation is a crucial first step in this direction.