The path to sustainable investing can feel like finding your way through a maze. Financial market actors trying to follow environmental, social and governance (ESG) principles find themselves in a world of complexity.
Investors are beset by difficult judgment calls and a general lack of standardisation in what counts as sustainable and what does not. Due diligence often involves data from multiple sources, which can cause confusion when leading to differing outcomes.
Rob Marshal, Global Head of Sustainability and Stewardship at M&G Investments, says ‘Harmonisation and alignment of meaningful metrics, and assurance of data, require informed decision-making to meet the demands of all stakeholders and reduce greenwashing potential’
It is also an area marked by continual product development. At HSBC Asset Management, Global CEO Nicolas Moreau says:
‘Delivering sustainable outcomes while maximising risk-adjusted returns requires constant innovation, which is why we’re pushing the boundaries of investment solutions in natural capital, climate tech, healthcare and green bonds.’
With an attempt to structure these evolvements, there is mounting regulation and reporting. Asset managers either based in the EU or selling into it are already required to provide disclosures and from next January, more detailed disclosure requirements come into force. They are the most challenging yet in a series of obligations imposed under the EU’s Sustainable Finance Disclosure Regulation (SFDR).
There is a lot of support for full disclosure. Sustainable funds now make up more than half of all mutual fund and ETF launches and there is widespread enthusiasm for accommodating ESG metrics to reflect a ‘greening’ of the investment world as part of the transition to a more sustainable future.
‘Transparency and disclosures are important both for us as an asset manager investing in companies and also for our clients investing in our funds,’ says Nordea Asset Management. Demonstrating clearly the importance of ESG credentials for funds.
Helping drive out complexity
At Euroclear, we have long seen our role as a financial market infrastructure in driving out complexity and replacing it with functional simplicity. We see easing the reporting burden on asset managers as part of that process.
In 2021, we acquired the global fund distribution platform, MFEX, viewing it as a natural complementary fit with our FundSettle trading and custody services to reach fund distributors and asset managers worldwide. MFEX by Euroclear already operated a RegTech Global Fund Watch that is a market standard for counterparty due diligence.
Now MFEX by Euroclear is teaming up with Greenomy, in which Euroclear is also an investor, to launch a new service to ease the EU Taxonomy-related reporting process for ESG asset managers and distributors. Greenomy is a SaaS firm specialising in providing sustainability reporting that helps companies and financial institutions measure, disclose and improve their sustainability in line with the EU legislation. We see this as a key role in the transformation of the investment market to reflect 21st century goals. We hope to play a key role in helping the transformation of the investment market by responding to the needs of asset managers and distributors. Rob Marshal at M&G Investments, confirms these demands: ‘Agile and effective platforms to simplify client decision-making on sustainability matters are fast becoming a must-have for the industry.’
The new service, which is readily available, will remove the burden of assembling all the portfolio company data, computing the scores and presenting the results in a form ready to be published on a firm’s website. As the process is fully digitalised, drawing on the Greenomy solution, and in this way is unique in the marketplace.
‘The development of this solution relied heavily on the cooperation between our different entities. Generally speaking, the incorporation of MFEX into Euroclear has enabled us to offer end-to-end services to asset managers and distributors and to be closer to their needs. This partnership helps us further develop our business in a pragmatic way’
states Vincent Clause, Head of Global Funds.
Towards comparable metrics worldwide
There is a wider role to play here, too – in helping the development of sustainable finance. The MFEX by Euroclear/Greenomy service will contribute to the scaling of the solution, hopefully establishing a trusted baseline for assessing a security’s ESG credentials. Both investors and issuers need more widely accepted standards in the ESG marketplace. Comparable metrics lie at the heart of that task, while common language and user-friendly processes are equally important in fostering ESG engagement.
With worldwide networks, MFEX by Euroclear plus the Greenomy solution, and the information flows we receive from asset managers, the entities are well placed both to help countries develop their ESG taxonomies and to bring together the varying ESG frameworks already in place. Clause underlines this approach ‘We believe the technical solutions are there to make these frameworks interoperable and look forward to future developments in the same line of thought. We see this as a natural extension of our neutral infrastructure role, providing the key linkages that make markets more accessible. The end goal is to reduce barriers to the issuance of sustainable securities. Improved transparency and communications between issuers and investors in different regions is a crucial task and one that requires a multi-party approach.’
If you want to know more about the EET solution, please email Greenomy@mfex.com
Euroclear is a platinum sponsor at of IMpower Incorporating FundForum 2022. Find out more about the 2022 event and agenda here >>