Private fund CFOs “can’t escape” their ESG obligations regardless of what regulators do, a compliance expert warned industry in a webinar co-hosted by Private Funds CFO and affiliate title Regulatory Compliance Watch.
“CFOs have historically not been a huge stakeholder within the ESG value chain for asset managers,” EY managing director Meredith Jones told the audience during the hourlong webinar December 5. But California’s new ESG disclosure law, the SEC’s proposed investment adviser ESG disclosure rules and the European Union’s Corporate Sustainability Reporting rules all “require limited assurance at the beginning and full assurance going forward… the CFO can’t escape it anymore.”
Like a growing number of experts, Jones doesn’t see ESG as a product line. She sees it as an enterprise-wide risk/opportunity question. Like a growing number of experts, Jones hopes to reframe the discussion.
“Understanding how ESG factors have the potential to impact your business – that’s a conversation that exists whether there’s a regulatory requirement or not,” she said. “I think it can be beneficial to maybe start framing the conversation for some of the folks internally, a little bit differently: talking about what the opportunities are from an asset-gathering perspective.”
‘This strategy and vision can cascade down’
Joining Jones for the hour-long webinar was Carlo di Florio, the former director of the SEC’s exams program, now the global advisory leader for compliance consulting firm ACA Group. He says ESG implicates fund managers’ highest levels.
“If the CEO and board are crystal clear on their expectations and their investments in ESG, then the CFO’s job is to execute,” he said. “And then that policy, and that strategy and vision, can cascade down with resources and investments in people, process and technology to bring that ESG strategy to life. If you get that, it’s a lot easier for the CCO to do the job that you’re asking about.”
A CCO can’t do it alone in any case, di Florio added.
“There’s no way a CCO can review the amount of marketing and disclosures that typically exists coming out of a mid-size or larger firm, and then to make sure there’s effective monitoring and testing and wording around all that,” he said. “That is going to take, in today’s environment, not just people. It’s going to take technology and it’s going to take data. Those tools are critically important, so that gets back to the portfolio and the CCO having the support of senior management and the board and the resources to be able to put the people, the processes, the policies, procedures, the technology and the data in place that helps them do that effectively and efficiently.”
Firms who want to tackle ESG should focus on the “G” part, Jones said. Different firms will have different answers, but tone from the top can make all the difference in the world, she said.
“You can’t really have good and effective environmental and social risk management and opportunities pursuit without having a strong governance model associated with that,” she said. “It’s really critical to have a way to escalate to the board of directors and have oversight at the C-suite level or at the board level, so that you’ve got folks that can push on strategy and maybe help break logjams where they need to happen.”