Skip to content

Hedge Funds Hit by ‘Onerous’ ESG Rule Turn to Lawyers

  • Funds outside EU don’t know if a key regulation affects them
  • Europe’s ESG rules surprise funds with their global reach
Updated on

An obscure rule covering environmental, social and governance investing in Europe has prompted hedge-fund managers in the U.S. and U.K. to turn to their lawyers.

At issue is whether they need to comply with one of the most complicated corners of Europe’s Sustainable Finance Disclosure Regulation. The sub-section in question -- the so-called Principal Adverse Impact rule -- requires investment firms to state whether their actions might in any way harm the environment. U.S. and U.K. hedge funds had thought the rule applied only to products marketed in Europe. But it now seems they must state PAI risks for their entire firm, even those parts that don’t target European clients.