Judging by the myriads of grand statements and complex regulations there seems to be near universal agreement that facilitating sustainable investments is the way ahead, as getting private and institutional investors excited will provide the necessary funding to transform the world economy.
Written by Søren Rahbek, Director | The 15th of February 2022
The transformation will of course provide fantastic business opportunities for those, who get it right.
But it seems to be difficult to transform the good intention into the right products and solutions. All actors in the financial sector eco-system however appear engaged and willing to discuss. And maybe primarily willing to discuss.
And to be fair, it is not easy. When you start reading up on legislation, it is easy to get lost in SFDR, Taxonomy (and the respective technical specifications), MIFID II updates, CSRD, special local initiatives etc. and at the same time, there are very clear statements that the current regulation is just a starting point, and that today’s definition of sustainability not necessarily is valid tomorrow. The combination can be a bit energy-draining.
Ambition & Culture
An ambition to be on the forefront of sustainability investments also clashes somewhat with a culture, where financial market participants want to be 110% compliant to regulation after having burned their fingers on other regulations like AML/CTF. We are also used to thinking that annual reports and other financial disclosures are precise and can be considered close to absolute truths (which is never the case).
Getting the right disclosure to investors of intentions and results of sustainable investments requires enormous sets of data. An investment fund may easily hold more than 2,000 individual securities – and now the impact of more than 20 principial adverse indicators per security need to be considered for the fund.
The Demand for Data
The financial market participants are being pushed to demand these data from investee companies. The financial sector usually does what the regulators ask them to and generating the demand for data through regulation seems smart – and those who get it right, will also gain an advantage.
However, data is not easily available. Quite a lot of data points and observations are actually ‘out there’, but the data needs to be identified, collected, and linked together with other static data on the investee companies. FinDatEx’s work on the European ESG Template (EET) seems to promise a structured collection and presentation of data on investment funds and other products. This will be exciting to follow.
Let’s Get Started
In addition, a certain degree of pragmatism is required on all sides. We can never arrive at the perfect solution in our first attempt, but that should not prevent us from getting started. We may double count and we may not have enough data, but we should start and apply the logics and models, which we know work in other regulatory reporting.
We have worked under specific requirements for annual reports for more than 100 years – and the field is still developing, and all reports are subject to discussion. But we still prepare them as best we can. Let us do the same on ESG and work together to create a transparent market for sustainable investments.
How CMP Can Help
We at CMP want to apply our knowledge and experience in implementing all-new regulation to this field and to leverage the Data collection and structuring abilities, we have in our REGTECH DATAHUB. Please do not hesitate to reach out.
Our name, Capital Market Partners, reflects what we define as our core service: Business understanding based on extensive experience in applying technology in the capital market area.
As a business partner, we offer consulting services based on our combination of business understanding and IT know-how. Our work analyzes, implementation of IT systems and other projects supports strategic decisions at different levels in complex business contexts.
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