All roads lead to 10th March in many current ESG regulatory plans, with consideration of the longer-term ESG regulatory roadmap not always topping the priority lists in Q1 2021. As we move into Q2 with updated Regulatory Technical Standards now published for SFDR Level 2 disclosures, reviewing your longer-term ambitions, readiness and structure to deliver on-going change will be key to delivering on your ESG objectives. Our three key tips below can help you prepare:
1) Build on what you can deliver by March
March should not be considered an ‘endpoint’ for either the UK Stewardship Code 2020 or SFDR; rolling compliance periods and the clarification of SFDR Level 2 requirements for 2022 signpost the commitment to maintaining ESG regulatory momentum. If you are set to miss the March deadline (April for asset owners) for the UK Stewardship Code 2020, do not despair; you can apply to become a signatory every three months, so spend this period preparing and focusing on defining a clear and effective stewardship approach.
Under SFDR, many asset managers are finding that the classification of their products is not as aligned to their ESG objectives as they had hoped and that the number of Article 8 and 9 products they currently have does not align with their strategy and vision for ESG. If this resonates, spend this year reviewing your products to align your classifications and goals to your over-arching strategy; forcing a square environmental peg into a round governance hole will not support long-term compliance.
2) Establish robust foundations for on-going change
The March regulatory deadlines have been a challenge for many asset managers; with the multitude of incoming regulation in the ESG space, these deadlines are just the beginning of the road to compliance. Resolving any challenges encountered so far and establishing robust foundations now for the on-going change will help you comply with the next phase of incoming requirements.
For this next phase of change, consider the following:
- Has your project structure involved the right people to facilitate decision making? Ensure key stakeholders across business spanning Investments, Distribution, Operations, Compliance and Technology / Data are actively engaged in your ESG regulatory programmes to facilitate strategic decision making
- Are your data and technology capabilities able to support effective stewardship and fulfil the SFDR Level 2 disclosure requirements? Start thinking now about the operating model you need to develop to facilitate increasingly detailed collection, monitoring and reporting of ESG data metrics to respond to the recently clarified requirements
3) Look beyond immediate deadlines for strategic direction
If your focus as a business to date has been meeting the March 2021 requirements laid out by SFDR Level 1 and the UK Stewardship Code 2020, you may not have been able to take advantage of the commercial opportunities presented by this emerging ESG regulatory landscape, nor react to the influx of client queries and requirements emerging as a result of the ESG regulatory roadmap.
To maintain momentum around your ESG objectives, consider the following actions in the short term:
- Build your ESG regulatory roadmap for 2021-2022 (and beyond!) to get ahead of regulatory deadlines coming in the medium term, such as SFDR Level 2, the EU Taxonomy and MiFID II
- Engage strategically with the increasingly ‘mandatory’ voluntary code landscape (such as the EU Ecolabel and TCFD)
- Look beyond the medium term to emerging industry standards – such as the UN Sustainable Development Goals – to build a competitive advantage in areas before they become minimum standards or regulatory requirements
- Get ahead of the curve in supporting and responding to your clients on ESG topics; prepare for increased levels of interaction and queries in response to regulatory changes, and be ready to support your clients’ ESG regulatory disclosures as required
Get in touch...
To find out more about the ESG regulatory landscape and how this may impact your business, please contact Katie Simm for more information.
Thinking more broadly about your ESG agenda for the year ahead? Read our thoughts on what it takes to be a leader in this quickly evolving space in 2021 here.
About the Authors
Sarah Hedges
Consultant
Sarah is an experienced consultant, specialising in ESG and RI regulations. Since joining Alpha in September 2017, Sarah has supported a variety of asset managers in understanding the ESG regulatory landscape, as well as assessing incoming requirements and associated implementation considerations. Sarah also has experience across the broader ESG and regulatory landscape.
Cathrine Hansen
Consultant
Cathrine is a consultant at Alpha specialising in ESG Reporting. Cathrine has four years of experience with consulting in the Asset Management industry and has supported global asset managers with designing and scaling up ESG client reporting across a number of asset classes and by completing regulatory health checks with respect to UK Stewardship Code 2020 and SFDR. In addition, Cathrine leads our Charity of the Year partnership with Plastic Oceans UK.
Katie Simm
Senior Manager
Katie is a Senior Manager with a focus on technology implementation, ESG & Responsible Investing and programme delivery services. Since joining Alpha in 2018, Katie has led a number of implementation programmes with large asset managers, including helping to define investment operating models and the consolidation of investment platforms. Before joining Alpha, Katie worked as a Big 4 consultant specialising in Financial Services & Programme Leadership.