Hedge funds are capitalising on mounting resistance to the European Union’s stringent ESG (environmental, social, and governance) regulations, advocating for exemptions from some of the bloc’s reporting requirements, according to a report by Bloomberg.
The focus of their efforts is the EU’s Corporate Sustainability Reporting Directive (CSRD), a sweeping framework designed to apply across industries. The directive requires firms to disclose ESG data related to their assets, but hedge funds argue that their operations should not fall under the same scope as traditional industries like manufacturing.
The debate has gained traction as Germany and France push to narrow the directive’s scope, while the EU’s financial services commissioner, Maria Luis Albuquerque, has hinted at potential adjustments in response to growing criticism.
The Alternative Investment Management Association (AIMA), whose board includes major players such as Bridgewater Associates and Millennium Management, is leading the charge. Representing members with approximately $4tn in combined assets, AIMA argues that hedge funds should be exempt from reporting ESG data on clients’ assets.
“It’s creating an enormous burden on firms that don’t have the same environmental or social footprint as a manufacturing company,” said Adam Jacobs-Dean, AIMA’s global head of markets, who also questioned the relevance of such reporting, particularly for firms without European clients or investors. “Who is the reporting for?” he asked.
This move by hedge funds is part of a broader backlash against ESG regulations in Europe, with critics warning that the rules could stifle competitiveness. Business leaders and lawmakers have pointed to the EU’s sluggish economy, arguing that excessive ESG compliance requirements put European firms at a disadvantage compared to the United States, where President Donald Trump has pursued aggressive deregulation.
Hedge funds and private equity managers operating in the EU already comply with the bloc’s Sustainable Finance Disclosure Regulation (SFDR), which they argue is sufficient to address ESG concerns within the financial sector.
Efforts to scale back ESG regulations have previously borne fruit. Last year, heavy lobbying by banks, asset managers, and insurers led to the exclusion of these sectors from the full scope of the Corporate Sustainability Due Diligence Directive (CSDDD). That directive would have exposed firms to litigation risks for ESG violations within their supply chains.
