Data remains the main sticking point for SFDR and ESG transparency compliance

Clare Vincent-Silk, Partner at Sionic.

Data continues to be the biggest challenge for both asset managers and owners although they are moving at their own pace, according to a new study by global SaaS provider Clearwater Analytics and global consulting firm Sionic.

The Europe-wide study which cites coverage, consistency and comparability as the most pressing issues, is based on a March-April 2021 survey of 21 European asset managers and 14 asset owners, including insurance companies and pension funds.

It explores the readiness of the European asset management industry for the Sustainable Financial Disclosure Regulation (SFDR) and ESG (Environmental, Social and Governance) transparency initiatives.

Aside from compliance with regulations, it also assesses the changes required to firms’ operations and supporting technology; and the key challenges firms face around data availability and standardisation.

It found external data providers are becoming more vital, with 95% of asset managers subscribing to at least one and averaging five, while 60% plan to increase this number over the coming year.

Asset owners are using fewer, with half not subscribing to any and the average being one, although 43% aim to expand the number.

The report showed that all asset managers are developing their own ESG data, with over 75% creating both scores and company engagement data, whereas 42% of owners are not producing any internal ESG data.

 Other key findings are that reporting is critical with 72% of asset owners that receive ESG related reports from managers wanting standardised reports across the board. Currently, only 18% deliver this.

As for manager assessment and monitoring, 50% have ESG specific exclusion policies, Of those 64% are monitoring against these restrictions manually, although automation would be the preferred option  where possible.

Robert Keller, CFA, Head of Product, Investment Management at  Clearwater Analytics.

Although 79% of firms are incorporating ESG-related information into board reports, this

mainly centres around carbon footprint. It is though at early stages and will evolve and mature over time.

Looking at asset managers specifically, 80% are focusing on front office analytics while on the client reporting front, 90% need to comply with SFDR but only 14% have identified an appropriate data source for the indicators.

In terms of compliance and monitoring, a third are extensively including ESG limits in their checks and a further 47% plan to enhance this area.

The two initiatives that have gained the most traction are the United Nations Principles for Responsible Investing (UN PRI) and Taskforce on Climate-Related Financial Disclosures (TCFD) with 85% of asset managers looking to address SFDR and TCFD together.

“It’s clear that asset managers and asset owners are actively making significant enhancements to their operating model to support sustainable investment activities,” says Robert Keller, CFA, Head of Product, Investment Management at  Clearwater Analytics. But we believe that the increasing in-flow of funds into ESG-related products and growing regulatory interest mean that this is just the beginning of a tsunami of change.”

Clare Vincent-Silk, the report’s lead author and Partner at Sionic adds. “Sustainable investment is increasing the challenges on data functions that are dealing with disparate, incomplete ESG data sets which are being used as inputs to internal modelling, exclusion checks and reporting.

Firms need to have in place an efficient and effective operating model, ensuring that their technology and data platforms offer the flexibility and scale to cope with this evolving type of investment activity, while providing an enhanced internal or external client experience.”

©Markets Media Europe 2021

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