New research published by the UN's Principles for Responsible Investment (PRI) has found that investors are sceptical about whether or not regulation is is driving real ESG change and alignment with sustainable development goals.

The report analyses nearly 300 pieces of regulation covering pension fund rules, stewardship codes and corporate disclosure rules.  It also interviewed policymakers, investors and stock exchanges in Europe, Asia, Africa and the Americas to find out if these initiatives change the way investors think about ESG, and ultimately the signals they send to their investee companies.

After looking at the data, the PRI said the analysis suggests that while regulation is having an impact, regulatory frameworks aren’t fully aligned with sustainable development.  Underpinning this is a belief that governments are failing to clearly signal the importance of ESG issues.

Nathan Fabian, director of policy and research at the PRI said: "Too often, the drafting of ESG regulation treats ESG as an optional add on, which investors can ignore if they so choose. We also see little monitoring of ESG-related clauses. While policymakers we spoke to discussed the techniques they use for monitoring the impact of regulation, this often falls short of holding individual investors to account – and the results are rarely made public."

The PRI's research also found that policymakers haven’t made the link between their ESG goals – such as the COP21 agenda or the UN Sustainable Development Goals (SDGs) – and the financial system.  While policymakers in China, the EU and France have started to discuss these issues, no government has yet articulated the role they expect institutional investors to play in achieving those goals, PRI said.

The PRI said it hoped that the report will help governments make the crucial link between sustainable development and the finance industry. In order to do that, the PRI believes governments should collect – and publish – more information on how investors contribute to or undermine sustainable development objectives.  They also need to monitor and assess the effectiveness of existing responsible investment regulation.