Hedge funds are leveraging increasing opposition to European ESG regulations to argue for exemptions from certain ESG reporting requirements.
The key point of contention is whether alternative investment managers should be obligated to disclose ESG data on assets they manage on behalf of clients under the European Union’s Corporate Sustainability Reporting Directive (CSRD). The directive, intended to apply across industries, is now under review, with Germany and France advocating for a more limited scope. The EU’s financial services commissioner, Maria Luís Albuquerque, has acknowledged the criticisms and signalled potential adjustments.
Against this backdrop, the Alternative Investment Management Association (AIMA)—whose board includes major players such as Bridgewater Associates and Millennium Management—is calling for hedge funds to be exempt from reporting ESG data on client assets.
“It’s creating an enormous burden on firms that don’t have the kind of environmental or social footprint that a manufacturing company might,” said Adam Jacobs-Dean, AIMA’s global head of markets. “And some of them won’t even have European investors or clients,” he added. “So who is the reporting for?”
The hedge fund industry’s resistance adds to a wider chorus of objections from business leaders and lawmakers who argue that Europe’s ESG regulations have become overly restrictive. Critics warn that excessive compliance burdens could further weaken the bloc’s economic competitiveness, especially as the United States moves towards deregulation under a potential Donald Trump presidency.
Jacobs-Dean contends that hedge funds and private equity firms already fulfil their ESG reporting obligations under the Sustainable Finance Disclosure Regulation (SFDR), the EU’s primary ESG rulebook for the financial sector. He argues that CSRD should grant similar exemptions, describing such a move as a “quick win.”
There is precedent for such concessions. Following intense lobbying from financial institutions last year, the EU agreed to exclude banks, asset managers, and insurers from the full scope of the Corporate Sustainability Due Diligence Directive (CSDDD), which imposes liability for ESG violations in supply chains.
The EU is set to propose modifications to CSRD and other ESG regulations later this month as part of its omnibus legislative process. While officials acknowledge the need for adjustments, they caution against expectations of a wholesale rollback.
Beyond hedge funds, asset managers are also voicing concerns about CSRD, particularly regarding whether client assets should be included in reported value chains. This issue was supposed to be clarified through regulatory guidance, but EU officials have prioritised adjusting ESG rules for small and mid-sized enterprises.
The Association of the Luxembourg Fund Industry, the Dutch Fund and Asset Management Association, and the European Fund and Asset Management Association (EFAMA)—which represents firms such as Amundi, BlackRock, and JPMorgan Asset Management—have urged the European Commission to confirm that client asset reporting is excluded until further guidance is provided.
“Due to this lack of certainty, there are diverging interpretations by auditors on the scope of application,” said Laurence Caron-Habib, head of public affairs at BNP Paribas Asset Management.
EFAMA’s Andreas Stepnitzka added that the organisation wants the upcoming omnibus simplification package to reinforce their stance that CSRD does not currently mandate client asset disclosures.
A European Commission spokesperson confirmed that the matter is under review.
While some firms remain flexible, others are preparing for potential compliance. Jenn-Hui Tan, chief sustainability officer at Fidelity International, said his company is ready to report under either interpretation of CSRD but warned that including client assets could create “potentially confusing messages” when compared to SFDR disclosures.
Legal experts are advising asset managers to assume that investments fall within CSRD’s scope unless explicitly stated otherwise. Raza Naeem, a financial regulation partner at Linklaters, noted that “the prudent view is to assume that investments are in scope” in the absence of definitive guidance.
Meanwhile, Dan Grandage, chief sustainability officer at Abrdn, said the firm’s priority is to meet reporting deadlines ahead of schedule despite ongoing regulatory uncertainty.
For hedge funds, however, the argument is not about how to interpret CSRD but whether they should be subject to its reporting requirements at all.
Under CSRD, companies must disclose ESG data starting with their 2024 annual reports. According to MSCI Inc., non-financial firms will report fewer than 500 data points covering issues such as climate impact and labour conditions on average. The European Commission’s upcoming omnibus bill is expected to address concerns over CSRD, the EU Taxonomy Regulation, and the Corporate Sustainability Due Diligence Directive.
