Asset manager reporting exemptions under the finalised ESRS could create a ‘significant blind spot’ for their sustainability performance

Asset managers are the latest group to benefit from revisions to sustainability reporting requirements, as EU and UK regulators look to simplify disclosure frameworks.

The European Commission has adopted its finalised sustainability reporting standards, which were revised under its first sustainability omnibus package.

The new ESRS will reduce the number of mandatory data points by more than 60 per cent and the number of total data points by more than 70 per cent, says the Commission. The changes are expected to reduce reporting costs by more than 30 per cent per company, the executive claims. The standards will apply following a two-month scrutiny period by the European parliament and Council.

Tsvetelina Kuzmanova, EU sustainable finance policy lead at the Cambridge Institute for Sustainability Leadership, questioned the move and said it was “disappointing” as excluding assets managed on behalf of clients creates a “significant blind spot” for the sustainability performance of financial institutions.

Kuzmanova acknowledged the Commission’s aim to avoid duplication with the Sustainable Finance Disclosure Regulation. But some sustainability fund reporting requirements are also likely to be cut as part of the ongoing overhaul of the EU’s fund greenwashing framework.

Meanwhile, in the UK, the Financial Conduct Authority is seeking to streamline reporting requirements for asset managers. Last month it proposed to simplify the Task Force on Climate-related Financial Disclosures reporting for investment products. The result would mean removing climate disclosure obligations for most UK funds previously in scope, unless the manager considers these risks and opportunities are materially relevant to the fund’s performance.

The main goals of the regulations are to combat greenwashing risks and mobilise more capital into sustainable investment. Sustainable funds saw heavy outflows in 2025, and asset managers fear the move to tighten EU fund greenwashing rules may shrink the market even further.

Capital allocation

Asset owners are increasingly looking to incorporate climate risk into their broader investment processes, shows London Stock Exchange Group research, with some pulling mandates from asset managers that in their view are not sufficiently prioritising sustainability.

One of the barriers to sustainable investing flagged in the study — and repeatedly cited across the market — is the availability of environmental, social and governance data.

Proposals from regulators to cut sustainability reporting rules for asset managers set a “troubling precedent” for asset owners, says Local Authority Pension Fund Forum chair Doug McMurdo, as they risk “privileging” reporting convenience over the information needs of those allocating capital on behalf of long-term beneficiaries.

This is happening “at precisely the moment when credible, decision-useful information is most needed”, McMurdo tells Sustainable Views. He sees “a broader drift towards weaker standards, diluted protections for asset owners, and a diminished focus on sustainability”.

Consistent and comparable sustainability information is “not a compliance extra, it is essential to inform capital allocation, effective manager oversight and proper discharge of fiduciary duties”, he adds.

Leo Donnachie, senior sustainable finance policy specialist at the Institutional Investors Group on Climate Change, says reporting has always been a “means to an end” and served as a useful basis for informing investor decision-making to get capital flowing to the relevant parts of the real economy. Simplifications should be “targeted”, he says.

European changes

The proposed changes to the EU’s fund greenwashing framework risk making it harder for asset owners to compare managers, “scrutinise” stewardship and escalation practices, assess real-world impacts and externalities, and identify greenwashing risks, McMurdo says.

Under the SFDR — which the EU is also revising — asset managers may no longer have to prepare entity-level principal adverse impact statements, which relate to the negative effect of investments on sustainability. The disclosure obligation is mandatory for only the biggest actors and many asset managers choose not to disclose voluntarily.

These disclosures provide an “important view” of how managers identify and manage sustainability impacts across their investment activities, McMurdo says.

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