How Is Europe’s Sustainable Finance Disclosure Regulation Working Out?

The European Union’s Sustainable Finance Disclosure Regulation (SFDR) has been enforced as law for a little over eight months, enough time for investors to get a feel for just how much the new environmental, social, and governance (ESG) disclosure rules are impacting their work.

The legislation, which applies to firms with 500 or more employees, was designed to combat greenwashing, a practice in which investment firms refer to themselves as “sustainable” despite the fact that until recently there was no consensus on what the words “sustainable” or “green” actually mean. The EU legislation is meant to fix this problem by creating a clear set of guidelines that must be met for a set of investments to be labeled as environmentally friendly. However, some see the new requirements as time-consuming and inefficient.

“It’s quite clear to me that the transparency agenda is a huge challenge and threat to incumbent investment managers,” said Joshua Kendall, head of responsible investment research and stewardship at asset manager Insight Investment. Kendall said he believes the legislation doesn’t differentiate enough between different types of asset classes or investment organizations, some of which can be harder to collect data for than others.

“If you look at what these KPIs [key performance indicators] are, they make relative sense on the corporate level,” he said. “But when you say ‘government portfolio’ and how you’re supposed to report from government, there’s basically only a couple of metrics which are required, and they are pretty useless.”

For more stories like this, sign up for the CIO Alert newsletter. 

However, there are many who disagree with Kendall and believe the new legislation will be successful. In an op-ed in Foreign Policy Magazine, Michael Moran, chief markets officer and chief of risk and sustainability at Microshare, argued that the legislation will make a significant difference in the sustainability of global investments. He pointed to the law’s ability to affect nearly every firm that comes into contact with the EU as evidence of how significant its effect would be.

Op-Ed: Europe’s New ESG Rules Create an Opportunity for US Investors

Europe’s ‘Ambitious Plans’ for ESG Disclosure Rules

Europe’s Second Largest Pension to Divest From Fossil Fuels

This story has been updated to clarify Joshua Kendall’s position on ranking assets. It previously stated that “some see the requirement of ranking every single asset in their portfolios as time-consuming and inefficient,” which might have mischaracterized Kendall’s perspective. Insight Investment has created their own internal method for ranking ESG assets.

Tags: ESG, Europe, green, Greenwashing, Insight Investment, sustainable, Sustainable Financial Disclosure Regulation

Jim Grossman

Pennsylvania Public School Employees’ Retirement System (PSERS) CIO Jim Grossman and Executive Director Glen Grell announced their retirements at a special board meeting Thursday morning.

Effective Dec. 9, Grossman will transition to the role of senior adviser and will assist in the transition to a new CIO until May 1, when he will officially retire. Grell will also become a senior adviser, effective Jan. 1, and will help with the transition to a new executive director until Feb. 28, when his retirement becomes effective.

Their resignations follow several months of controversy. The $72 billion pension fund, the largest in the state, revealed in March that a nine-year performance figure certified in December 2020 was inaccurate. In December, PSERS’ board of trustees had been told by its general investment consultant and another firm that its nine-year performance figure was 6.38%, which was just high enough to avoid the 6.36% threshold triggering additional contributions under state law.

However, when PSERS management informed the board in March that there were errors in the data used to perform the calculation, and a review of all performance data was ordered, it was revealed that the actual nine-year performance fell short of the 6.36% target. This meant that school employees, as well as taxpayers, had to contribute more to the pension fund.

For more stories like this, sign up for the CIO Alert newsletter. 

The controversy drew the attention of the FBI, which reportedly is investigating whether kickbacks and bribes were involved in the misstatement of its 2020 investment performance. And in June, six of the board’s 15 members called for the removal of Grossman and Grell as a result of the financial reporting error.

“As fiduciaries possessing a duty of loyalty to the beneficiaries of the retirement fund, it is our intention to request the immediate termination and replacement of the executive director and chief investment officer,” read a letter to Board Chairman Christopher SantaMaria. However, a few days later, the board members withdrew their request.

According to Pennsylvania PSERS, the pension fund’s total net assets grew to $72 billion from $49 billion under Grossman’s tenure.

“Jim’s guidance and leadership have been important over the last several years as the fund has continued to recover from the great financial crisis and improve its funding status,” the pension fund said in a statement. “He has been responsible for managing and administering the investment program, advising the board in the development of an asset allocation policy, and leading the investment office. … The PSERS Board would like to thank Jim for his years of service to PSERS’ members and annuitants and wishes him well in his future endeavors.”

Grell, who turns 65 at the end of December, has been executive director since 2015. Before that, he had served as the state representative for the 87th district in the Pennsylvania House of Representatives since 2004.

“Glen has been a fierce advocate for fully funding PSERS, working with members of the General Assembly and the governor’s office to secure 100% of the annual required contribution each year since 2016,” Pennsylvania PSERS said in a statement. “Under Glen’s leadership, the agency has become more user friendly, allowing PSERS members to complete transactions through the member self-service portal.”

The fund said Verus Advisory Inc. will continue in its role of providing investment oversight and supervisory services. PSERS also said it has launched a search for a new CIO and executive director, effective immediately.