Travers Smith's Alternative Asset Management and Sustainability Insights

A series of regular briefings for the alternative asset management industry.

Travers Smith's Alternative Asset Management and Sustainability Insights

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Travers Smith's Sustainability Insights: Is 2022 the year to focus on nature?

Last year, many alternative asset managers worked harder than ever to ensure that their investment approach was equipped to meet one of the defining challenges of our time. Sustainability – although not a new theme for most firms – was close to the top of the agenda. While legal and compliance teams struggled to keep up with new and emerging sustainability regulation, senior-decision makers re-focused on the opportunity. Increasing investor demand for investment funds that are part of the solution to societal problems – and a growing aversion to those that do not actively avoid harm – requires a strategic response.  But the active ownership model that is an integral part of private capital's heritage means alternative asset managers are very well-placed to respond.

Environmental, social and governance (ESG) issues are many and varied, but the climate emergency overshadowed many others in 2021.  That will not change any time soon: European regulators are prioritising climate-related issues in their regulatory responses. The EU's Taxonomy, which is now live, will only cover economic activities that address climate change until at least January 2023. The UK's taxonomy will similarly prioritise climate issues, and many UK-regulated alternative asset managers – along with most other economic actors – will soon have to issue reports on climate change related financial risks and opportunities using the internationally recognised TCFD framework. The US has re-signed the Paris Agreement on Climate Change and is also expected to bring forward new mandatory disclosure rules for public companies in 2022.  Last year's COP 26 – with a full day dedicated to finance – raised awareness and added significant momentum.  Many firms signed up to pledges to play their part in reducing greenhouse gas emissions and will be held to account for their performance in the decade to come.

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