More needs to be spent to help clients with ESG compliance

Andrew Bateman, EVP buyside solutions at FIS.

Asset managers and fund administrators will have to increase their spending in compliance and data management to help clients meet new regulations and disclosure requirements around environment social and governance (ESG) investments, according to the latest FIS Readiness Survey.

The study, which  polled over 1150 C-level executives across Asia Pacific, Europe, and North America, found the pressure is on as assets under management continue  to soar in ESG funds.

A separate report by Morningstar showed net inflows for sustainable funds hit a record €233 bn – more than twice the amount for 2019, with 505 sustainable funds entering the market.

 

The FIS survey noted that 70% identified new risk management systems covering liquidity and investment risk as a key area of investment – significantly higher than any other emerging risk and compliance area.

In addition, 45% believed that bolstering compliance and risk management was the primary reason for investing in artificial intelligence and machine learning while 35% highlighted the need to analyse large data sets.

“Asset managers and fund administrators already play a significant role in helping fund managers comply with regulations through reporting and data insights,” says Andrew Bateman, EVP buyside solutions at FIS.

He adds, “They will also play a pivotal role as ESG becomes prevalent, but they are not ready yet. With standards and guidance around ESG disclosures developing fast, as well as other demands from clients such as more advanced liquidity and investment risk, administrators need to prioritize investment in data and compliance functionality.”

Regulation is only expected to increase. In the European Union alone, there are three key pieces of legislation on sustainability disclosure. They include the Sustainable Finance Disclosure Regulation (SFDR) which aims to make funds more transparent and easier to differentiate with respect to sustainability.

There is also the EU Taxonomy and the Non-Financial Reporting Directive which emphasise transparency and disclosure.

Meanwhile, the UK government has created a working group – the Green Technical Advisory Group (GTAG) – to oversee the delivery of the green taxonomy in the UK. It is tasked to give advice to the government on developing the framework, supporting investors, consumers, and businesses to make green financial decisions and clamp down on greenwashing.

©Markets Media Europe 2021

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