ESG regulations are constantly evolving and seek to increase transparency in sustainability claims. The SFDR and CSRD are two notable disclosure regulations that have a profound impact on client reporting practices, suggests Abbey Shasore, CEO, factbook.
In recent years, Environmental, Social, and Governance (ESG) considerations have become increasingly central to investment strategies and decision-making processes. As the market for ESG funds has experienced exponential growth, so too have the reporting requirements and regulatory frameworks surrounding these investments. This evolving landscape presents both challenges and opportunities for asset managers, particularly those based in the European Union (EU).
The Regulatory Framework
Two key regulations are reshaping the ESG reporting landscape in the EU.
The Sustainable Finance Disclosure Regulation (SFDR): Implemented in March 2021, the SFDR aims to enhance transparency in sustainable investments within the EU. Its primary objective is to provide investors with clearer, more standardised information about the sustainability claims of various investment products.
The Corporate Sustainability Reporting Directive (CSRD): Set to take effect for the 2024 financial year (with first reports due in 2025), the CSRD expands on existing non-financial reporting requirements. It mandates that large companies disclose detailed information about their ESG practices, risks, and opportunities covering a wide range of sustainability topics, including carbon emissions, water usage and pollution.
Strategies for Success
These measures will require more fundamental changes to your reporting processes than you might imagine, including the need to ingest data from multiple sources in multiple formats. Taking a piecemeal approach to the problem will likely impair your firm’s ability to scale its reporting function and possibly also reduce the reliability and quality of your reporting.
From my experience, investment management firms expect system vendors to be able to handle the requisite operational challenges brought about by regulatory and cultural change. For example, we recently helped a client by envisioning and delivering a client engagement programme, including on-demand reporting for internal users (often C-suite executives), featuring sustainability and ESG profiling, and impact reports covering emissions and carbon footprint. Unfortunately, not all systems vendors are geared up to handle this kind of task.
Another recent client enquiry we dealt with surrounded the requirements of the TCFD. The Task Force on Climate-related Financial Disclosures (TCFD) developed a framework to help public companies and other organisations more effectively disclose climate-related risks and opportunities through their existing reporting processes. The client realised that if they failed to respond swiftly to the TCFD’s guidelines, the firm would run the risk of missing a mandated publication deadline. The issue here was that the firm’s Client Reporting team only found out they would assume responsibility for product level TCFD reporting just a few months prior to the deadline for publication of scores of required reports in June 2024.
Investment managers know their business landscape and appreciate that regulatory changes will occur on a frequent basis. They also know that they need to be working with a vendor partner that has the capability to deal with such reporting developments (perhaps through the deployment of tools like flexible templates and rules-driven components). The more regulatory requirements, the more investment managers will have to re-examine their processes to ensure that they can thrive, not just survive.
With ESG reporting, firms are having to gain access to and rely (even more than with client reports and fund factsheets) on the fact that the data they need to undertake that reporting has to be ingested from multiple sources. Unfortunately, there is no singular ESG performance reporting database that every investment manager can simply plug into, therefore the ability to connect with and utilise many different external data sources within ESG reporting is of paramount importance. Whether it’s just drilling down into positions or attribution data, firms are having to go to lengths that they have not dealt with previously.
How Factbook Can Help
Factbook supports reporting on every investment strategy. We help investment managers stay ahead with Impact and ESG reporting, and with everything required to digitalise their clients’ experience. Most of our engagements are driven by our best-in-class Reporting as a Service, an outsourced offering.
We can access data from unlimited, disparate sources, including external fund managers, market data vendors, TPAs and other third-party partners. We then control the manipulation and onward presentation of this data.
We leave the last word to a client:
“Our requirement was to find a solution that was flexible and scalable to support our business model yet still capable of offering our clients the highest possible level of service,” explains Henry Spurrier at Amber River. “As a rapidly growing business, we wanted to provide clients with an informative yet visually appealing solution, delivered to them in timely fashion. Selecting the right partner to help us achieve this was therefore imperative. After a highly successful demonstration, in which Factbook proved the speed, agility and flexibility of their system, we are confident that they are the correct partner.”
By Abbey Shasore, CEO, Factbook
@FactbookCompany
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