This March, the EU agreed a new draft for a proposed regulation which would force asset owners and financial services companies in the region to disclose the impact of Environmental, Social and Governance (ESG) factors on their portfolios.
Under the regulation, part of the EU’s wider package on sustainable finance, asset owners, insurance companies and fund managers will be obliged to disclose how they integrate ESG factors into their products and how they ensure they respect ESG objectives in their investments. Firms would also be required to disclose their internal processes for ensuring ESG integration, and outline how ESG risks might impact their strategies and funds.
This latest draft of the regulation adds a new clause, which when passed will present another reporting headache for money managers. The new clause stipulates that firms must be able to report if any of their investments contribute towards environmental damage.
For firms that have already put in place sustainable products and reporting, the new rules will be welcome: having forged ahead of the market they will enjoy a competitive advantage. For those that have not yet put in place the required processes and data, however, the regulation adds an unwelcome compliance headache – and one that could prove costly. Moody’s has estimated that the initial cost of compliance with the new regulation could be as much as 0.25%-2% of asset managers’ total costs.
One way in which firms can mitigate some of the cost and disruption that will come with complying with this new regulation is to partner with managed data service providers such as RIMES. Rather than having to source, qualify, quality control and onboard all the required ESG data in a format that’s ready for use in operational systems, firms can leverage cloud services that delivers ESG data management as-a-service.
This approach is exponentially faster and frees in-house data management and compliance resources to focus on the core business. Taking ESG data as a managed service will also enable firms that have fallen behind in their ESG preparedness to rapidly catch up with the market leaders.
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