Pascal Rapallino (IQ-EQ): Preparing for the ESG transparency revolution
Pascal Rapallino, group investment structuring leader at fund and corporate service provider IQ-EQ, says service providers are called upon to play a critical role in data compilation and reporting as asset managers and family offices adapt to the sustainable investment requirements of investors and regulators.
How can the wealth and asset management industry navigate the shift towards sustainability?
Many clients attach increasing importance to having their money managed in a way that has a positive impact on the world, especially in terms of protecting the environment, curbing global warming and improving people’s lives. The shift is particularly pronounced among millennials who want to invest with a purpose. Confronted with this trend and the growing popularity of investment strategies based on environmental, social responsibility and governance criteria, asset managers have launched a large number of similar sustainability-oriented products on the market. However, in our experience not all have genuine ESG credentials; in many cases firms use the term mainly as part of a marketing strategy. To remedy this, asset managers need help in different areas to build their ESG policies and frameworks, for example to conduct checks on portfolio companies to ensure that they are fully aligned with sustainability principles.
“ Initiatives such as the EU’s green taxonomy are critical in order to advance the standardisation of data in order to make it increasingly comparable and valuable.”
How can the private wealth industry boost transparency in ESG reporting and measurement?
Investors are increasingly incorporating both financial and non-financial data into their portfolio construction alongside their growing focus on ESG investment, and the private wealth industry is evolving to meet this shift in strategy. A crucial element in this decision-making process is identifying and tracking relevant and reliable ESG data, which up to now has been complicated by the absence of harmonised definitions and measures, as well as limited publication of sustainability data by companies. Initiatives such as the EU’s green taxonomy are critical in order to advance the standardisation of data in order to make it increasingly comparable and valuable. That’s why service providers such as IQ-EQ are investing in new technology and solutions to assist clients in gathering, benchmarking and tracking ESG-related data.
How will the SFDR impact asset managers and family offices?
The EU’s Sustainable Finance Disclosure Regulation requires the publication starting on March 10 of information from financial market participants on the sustainability of their investment decisions. It is applicable to businesses including AIFMs and managers of impact investing or other funds based or marketing products within the EU. Time is getting short for asset manager clients to ensure that their fund documentation including prospectuses or private placement memorandums, websites and management systems have been updated to enable them to comply with the SFDR requirements. And the regulation represents just the first step in a series of unfolding legal measures that will cement the central role of ESG considerations at the heart of firms’ investment processes.