Asset managers globally need to brace for stricter anti-greenwashing measures and heightened scrutiny of AI adoption, recent analysis from KPMG has shown.
According to the professional services firm, the UK currently leads the charge in the implementation of anti-greenwashing measures, as well as entity-level sustainability reporting.
It anticipates that Australia is likely to follow the UK’s example, particularly in relation to tightening ESG-related rules, KPMG superannuation advisory lead Lisa Butler-Beatty noted.
“Asset managers should be prepared for the ongoing expansion of economy-wide ESG reporting going forward,” she said.
Locally, the Australian Securities and Investments Commission (ASIC) has doubled down on its focus on market integrity and has taken action against alleged “misleading and deceptive conduct”.
And while Australian regulators have made strides in ensuring product-level disclosures are up to scratch, they lag behind global counterparts in developing frameworks around entity-level disclosures and anti-greenwashing rules, KPMG warned.
On the bright side, the Albanese government in August passed legislation to establish Australia’s climate risk disclosure framework, introducing standardised reporting requirements for businesses to ensure they are making high-quality, climate-related financial disclosures.
Moreover, Australia has also begun the process of developing a sustainable taxonomy, with KPMG global ESG asset management lead Geri McMahon encouraging local asset managers to begin to define what sustainability means for them.
“A sustainable finance taxonomy establishes definitions for green and transition finance, enhancing consistency,” McMahon said.
According to KPMG, asset managers globally are also soon to come under worldwide reporting requirements intended to enhance transparency around corporate sustainability credentials.
Namely, the International Sustainability Standards Board (ISSB) has finalised International Financial Reporting Standards (IFRS) S1 and S2, setting out general requirements for disclosure of sustainability-related financial information and climate-related disclosures.
“However, adoption is moving at different speeds in different jurisdictions,” the report underscored.
While the likes of Brazil, Hong Kong (SAR), China and the UK have already committed to adoption of the standards, Australia is still finalising an implementation timeline, according to the professional services firm.
As global economies push for stricter controls on the ESG-front, asset managers are also looking to artificial intelligence (AI) to help them drive performance improvements.
“It’s not just technology that’s evolving. So, too, is the regulation with different approaches emerging, ranging from prescriptive, AI-specific rules to technology-agnostic approaches that rely on existing framework and rules,” KPMG said.
Locally, ASIC has identified its growing focus on AI on a number of occasions, including in its 2023–27 corporate plan.
There, it highlights that existing laws regarding financial services and consumer protection, including misleading and deceptive conduct provisions, are “technology agnostic and apply equally to AI and non-AI systems and processes”.
KPMG’s report indicates that while global regulators are prioritising AI and the digital technology revolution, the pace of change varies greatly between jurisdictions, creating challenges for global asset managers hoping to reap the benefits of these nascent technologies.
“Asset managers should focus on reviewing how the new technologies will work with existing architecture, and what the new risks are,” Butler-Beatty said.
“The opportunity is now for companies to start building strong foundations for regulatory compliance going forward.”
Piers Bolger, chief investment officer of Infinity Capital Solutions at Viridian Financial Group, earlier this year admitted that the regulation of AI can be “challenging” given its wide scope and adoption across various levels.
“It’s hard to regulate emerging technology. ‘Artificial intelligence’ is open to debate in terms of what is AI and individual or firm-wide perceptions of it, and how it gets embedded into the way people go about their business,” he said.
For Bolger, regulatory guidance would require agencies like ASIC to form a solid view on the technology.
“Until you form a view on it, until you’ve got a fair view on what role it can play and the path forward of AI … then you can form a view on what regulatory guidance or framework you want to put around it,” he told InvestorDaily.
