The Data Management Challenge Behind SFDR Reporting Requirements

The EU Sustainable Finance Disclosure Regulation (SFDR) will begin the next phase of its implementation in July 2022. From this date, asset managers and other financial market participants will need to report on Environmental Social and Governance (ESG) disclosures, including the principal adverse impacts (PAI) of investment decisions on sustainability factors.

From the draft Regulatory Technical Standards (RTS) for SFDR, it is clear to see that compliance with PAI reporting requirements will not be easy. A recent survey of nine ESG data vendors by Irish Funds on the subject of PAI reporting sheds some light on the challenges at hand.

The survey reveals that as of May 2021, data is generally available for only eight of the fourteen mandatory PAI requirements pertaining to investee companies, and that a number of ESG data points suffer from patchy coverage, a wide variance in reported data, and low levels of comparability.

This fragmented data landscape is understandable given the relative immaturity of ESG reporting, and will be remedied over time as the market matures. However, asset managers and other financial services firms need an SFDR reporting approach that’s ready for use in the short term.

Elisabeth Seep, Head of ESG Product Management at RIMES, comments: “Currently the only way to meet the reporting requirements of SFDR is to source ESG data from as large a number of vendors as possible – somewhere around three to five vendors in our experience. Doing so enables firms to offset gaps in one vendor’s data with data points with those of another vendor.

“However, sourcing from multiple providers in this way is a significant data management task for firms, many of which will not have the in-house resources to spare. Not only do a variety of datasets in differing formats need to be validated, but firms will need to map SFDR data to issuers and securities to match against their portfolios.

“This is a big task and one that it ultimately not generating value for the business. That’s why RIMES has launched our EU SFDR Service, part of our award-winning Managed Data Services. Through the service we take on the task of sourcing, validating, mapping, enriching, aggregating and distributing ESG data for clients to meet their SFDR reporting needs. The service is founded on our partnerships with all major ESG vendors, and is constantly growing as new vendors come to market, or clients request new feeds to be added to their service.

“As the ESG data market continues to take shape, our service will enable firms to deliver on complex compliance requirements with ease so they can focus on their core business activities.”

Contact us to request a copy of RIMES’ new ESG eBook.

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