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Asset managers that have already embraced sustainable investing will benefit from new European Union (EU) rules mandating disclosure about environmental, social and governance (ESG) investments, says Moody’s Investors Service.

In a new report, the rating agency notes that on March 7, the EU agreed to adopt new rules setting requirements for sustainable investment disclosure. Among other things, these new rules will require asset managers to disclose their procedures for factoring ESG risks into their investing process, disclose how ESG risks could impact their investment returns, and report on how environmental investment strategies are being implemented.

“The rules aim to eliminate ‘greenwashing,’ the practice of making misleading claims about investment products’ sustainability characteristics, and to provide investors more clarity on ESG investments. They require asset managers in the EU to report ESG risks and opportunities as part of their fiduciary duty,” Moody’s said.

The new disclosure framework will likely benefit firms that have already built processes for ESG investing and reporting, Moody’s suggested.

“For asset managers that have the appropriate infrastructure, expertise and product range, the rules will likely lead to increased inflows into sustainable strategies, given increasing demand for ESG products,” the rating agency said.

At the same time, the new requirements will also add compliance costs, as systems, personnel and training expenses may increase. Moody’s estimates that firms’ costs could increase by between 0.25% and 2.0%, depending on the extent to which they already incorporate ESG factors, and report on ESG to investors.

“The costs will be relatively steeper for smaller players without ESG expertise,” Moody’s said. “Asset managers with growing ESG involvement and an innovative product suite… are best positioned to absorb these costs.”