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The investing industry is facing unprecedented demands from officials in Brussels charged with putting the European Union’s policies to counter climate change into practice. Regulations will soon force asset managers to quantify and disclose how much their holdings degrade the environment -- through carbon emissions, wastewater release and deforestation.
As with its forays into the technology industry, Europe could end up setting a benchmark for everyone. U.S. companies that sell in the bloc, such as Vanguard Group and JPMorgan Chase & Co., would probably also have to abide by the rules.
“They’re essentially setting a global bar for a lot of the industry,” says Andy Howard, global head of sustainable investment at Schroders Plc, a money manager in London that dates back to 1804. “This is happening incredibly quickly.”
In contrast, authorities have loosened bank funding and trading rules in recent months. Lenders were allowed to run at lower levels of capital and won relief from restrictions on leverage to make sure they could keep credit flowing through what could be the worst recession in decades, if not hundreds of years.
The move to force major parts of the $89 trillion asset management industry to report on the “adverse impact” of their investments on the environment is one of the first major pieces of the European Union’s climate-change agenda. The aim is to be the first climate-neutral continent by 2050 and to beat the 2016 Paris accord objective by keeping the temperature increase below 2 degrees celsius.