On March 10, the EU Sustainable Finance Disclosure Regulation (SFDR) came into force. This flagship regulation is the EU’s attempt to build a robust sustainable investment market and better integrate Environmental, Social and Governance (ESG) risk criteria.
However, for the asset and fund managers, investment firms, credit institutions and insurers that fall under its scope, SFDR represents yet another major compliance headache. With SFDR now in force, all EU regulated entities, and non-EU firms doing business in the Union, need to meet extensive disclosure obligations around their investments.
The most onerous requires that firms disclose the adverse impacts of investment decisions on sustainability factors. To meet this obligation, market participants need to be able see the exact ESG implication of every asset on their books, something that represents a significant data management challenge.
First, firms will need to source and onboard data ESG data for all their various asset classes from what is an extraordinarily complex ecosystem. The lack of standardization for ESG scoring and ratings methodologies or even file formats makes it extremely difficult to layer composite ESG data across a universe of securities.
Adding to this challenge is that different providers gather ESG data in different ways. For instance, while some source data from company reports and financial statements, others look at data from social media feeds. These differing commercial models require different approaches to assessing the quality of the data, layering on yet more complexity.
Similarly, data providers vary in their approaches to instrument and entity mapping, which makes it a challenge for firms to identify the ultimate owner of an asset. This could put firms at risk of non-compliance with the entity level disclosure requirements of SFDR.
Neil Kelly, Head of Sales EMEA at RIMES, comments: “The ESG data landscape is still young, and that presents real difficulties for firms that now have to comply with SFDR. Sourcing, mapping and validating high-quality data is essential – and not only to compliance; it is also the basis of sound investment decisions. However, these are time consuming and onerous tasks requiring significant increases in headcount to meet.
“If firms are to meet the compliance requirements of SFDR without seeing costs increase out of control, they can partner with managed service providers like RIMES. Our ESG Data Management service is based on our direct relationships with data providers as well as our ability to cross reference and map data across issuer assets. With RIMES, firms can rapidly meet their compliance obligations without getting bogged down in yet another set of data management tasks, something that provides a clear advantage.”
RIMES Managed Data Services is a proven data operating platform that helps firms of all sizes and in all regions align their data consumption closely with business needs. Contact us to learn more.
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