Hedge Funds That Dodged Climate Rules in Europe Take Aim at UK

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(Bloomberg) — The hedge fund industry is lobbying hard to ensure the UK excludes it from new climate regulations, after prevailing in a similar campaign in the European Union.

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The London-based Alternative Investment Management Association, whose members include Bridgewater Associates, Millennium Management and Man Group, says its main objection to the proposed rule — under which firms must provide climate transition plans — is that it would force funds focused on short-term bets to link those positions to decades-long emissions scenarios.

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If a fund’s “investment horizon is relatively near term, then it might not be meaningful to have a plan that goes out to 2050,” Adam Jacobs-Dean, global head of markets at AIMA, said in an interview. Funds also “might simply be investing in instrument types that don’t have a particularly strong connection to the real world economies, if they’re simply trading interest rates.”

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The UK has had to step up its focus on climate regulation after a 2024 court order that sided with environmental activists. Since then, the government has been working to find ways to address the court’s conclusion that its existing climate policies weren’t robust enough to live up to its stated net zero goals.

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The proposed climate transition plans are part of a larger sustainable finance package due to be unveiled by the government. An update will be provided “in due course,” a spokesperson for the Department for Energy Security and Net Zero told Bloomberg.

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Transition plans “will be crucial” to seizing the opportunities and avoiding risks, Energy Secretary Ed Miliband said in a June statement. 

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The requirements, if adopted, would apply to all UK-regulated money managers, banks, insurers and pension funds, including subsidiaries of companies headquartered outside the UK. Companies listed on the FTSE 100 Index would also be subject to the requirements. 

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The Institutional Investors Group on Climate Change, whose members manage roughly $75 trillion, is advising the UK to pursue a phased-in approach that starts with the largest companies and includes some flexibility for the smallest. 

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The hedge fund industry is currently on track to be exempted from EU requirements, including the Corporate Sustainability Reporting Directive, after AIMA added its voice to the list of critics. AIMA argued that the framework would place an unreasonable burden on its members, in many cases forcing them to duplicate information they already provide via other regulations.

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Jacobs-Dean of AIMA, whose members oversee roughly $4 trillion in total assets, said the association is “not opposed” to the idea of leveraging the finance industry to address climate change. “It’s more about identifying in that context what is likely to be effective,” he said.