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  9. Sustainable Finance & ESG Investments

SUSTAINABLE FINANCE & ESG-INVESTMENTS

In view of the global demand trend from institutional and private investors towards sustainable investments, many financial market participants face various challenges. The increasing regulatory pressure triggered by the gradual implementation of the EU Action Plan in 2018 and 2019 is also increasing the speed of implementation in the industry. In order to facilitate Sustainable Finance three legislative proposals and draft amendments to existing delegated acts of EU Directives were adopted:

  • disclosure obligations regarding information on sustainable investments and sustainability risks (e.g. consideration of ESG (Environmental, Social and Governance) criteria in the investment decision, methodology applied) and requirements for (pre-) contractual documents. The final Regulation (EU) 2019/2088 was published in the Official Journal of the European Union on 9 December 2019 and will apply in all Member States from 10 March 2021.
  • introduction of new categories of low carbon benchmarks and benchmarks for investments with a favourable carbon footprint amending the existing Benchmark Regulation (EU) 2016/1011. The final Regulation (EU) 2019/2089 was published in the Official Journal of the European Union on 9 December 2019 and entered into force on 10 December 2019.
  • draft proposals to amend MiFID II (Markets in Financial Instruments Directive) and IDD (Insurance Distribution Directive) in order to further clarify inclusion of ESG considerations in the investment and advisory processes of investment firms or insurance companies. The draft regulations amending delegated acts of MiFID II and IDD have already been formulated and are expected to be published in the Official Journal of the European Union in Q1 2020.

At na­tio­nal le­vel, the Fe­deral Fi­nan­ci­al Su­per­vi­so­ry Aut­ho­ri­ty (Ba­Fin) pu­blis­hed in De­cem­ber 2019 a gui­dance no­ti­ce on dea­ling with sustaina­bi­li­ty risks and cle­ar­ly for­mu­la­ted its ex­pec­ta­ti­ons. Sustaina­bi­li­ty risks should be con­side­red ap­pro­pria­te­ly and in­te­gra­ted into the exis­ting risk ty­pes (such as credit, mar­ket and li­qui­di­ty risk).

With the EX­XE­TA Sustainable Fi­nan­ce & ESG In­vest­ments team, we sup­port you both in achie­ving your stra­te­gic goals and in im­ple­men­ting re­gu­la­to­ry re­qui­re­ments — with the fa­mi­li­ar high qua­li­ty stan­dards.

Your challenges

For the asset management industry, the subject of Environmental, Social, Governance ‒ ESG (investments) represents not only a great opportunity but also a new need for implementation and adjustment. This can begin with the definition of sustainability: From the location of organisational responsibility, the procurement of ESG data, the selection of methods, the definition of threshold values for individual ESG factors, the consideration of upcoming regulatory requirements (e.g. the draft regulation on the establishment of a framework to facilitate sustainable investments (often referred to as EU taxonomy) to the question of what effects a requirement has on business processes or IT systems.

High-level overview of the expected effects using the example of an asset manager's value chain:

Our offer

Our experts in the Sustainable Finance & ESG Investments team offer comprehensive consulting services. As an experienced partner, we are at your side and support you along the entire asset management value chain with a top-down approach.

Strategy

In the context of embedding ESGissues in your business strategy, we can advise you on a wide range of issu­es. For example with:

  • Positioning in the overall bank context,
  • Definition of strategic approaches and ambitions,
  • Market development analysis,
  • Gap analysis of an existing ESG strategy.

Preparation of Implementation

With the help of a detailed impact analysis, the basis for the preparation of implementation options is created. We also help you to prepare comprehensive regulatory frameworks, such as the EU Taxonomy, for implementation with a variety of impacts on the value chain in the asset management industry. With the help of an ESG roadmap, smaller projects can be planned as well as the implementation of a company's strategy can be brought within a time­frame.

Implementation

Tailor-made implementation in the identified areas along the entire asset management value chain, tailored to the client's strategy and needs. We have project experience in both agile and classic project management approaches. The following points are intended to give an overview of some of the topics in which we can support you:

  • Selection of ESG vendors and integration of ESG data
  • Coordination and adjustment of investment processes and data flows (adjustment of the data budget may be necessary),
  • Review and definition of methods, thresholds and criteria in investment management and risk management,
  • Consideration of physical risks and transition risks (in risk models and also in strategy)
  • Publications on ESG-activities and their consideration in risk management (metrics, if applicable) are required,
  • Preparation / adaptation of reporting with regard to the ESG factors relevant for customers (tool-based possible).

Your benefits

We have extensive experience in business and impact analysis. Our in-depth industry knowledge and expertise combined with a track record of numerous successful projects in the regulatory environment and in the ESGcontext enable us to take a holistic conslulting approach.

These skills enable us to efficiently and effectively implement both regulatory requirements and business policy decisions — and to call in other EXXETA experts, e.g. IT developers, if required.

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