With socially conscious investing continuing to rise in prominence, many asset managers are working intensely to create strong and robust ESG investment vehicles. How can companies navigate the ESG landscape?
One of the biggest challenges seen in the regulatory space for ESG is the concept of ‘greenwashing’ and ensuring that funds are as sustainable as they say they are. With regulations abound to protect investors from greenwashing, this has resulted in a very complex reporting environment.
As detailed by Compliance Solutions Strategies, the various standards that define ESG regulation today are not particularly well aligned, leaving businesses without a clear roadmap to compliance. In addition, the granular nature of ESG data adds a ‘significant administrative burden’ to relevant factors into the investment process and to fulfil disclosure requirements, CSS claims.
CSS said, “With regulators, allocators and investors alike calling for greater clarity and efficiency, there is a clear need for a comprehensive ESG solution that enables firms to make sense of vast datasets while streamlining the overall compliance process. With the right tools, asset managers can navigate this rapidly shifting regulatory and business landscape with flexibility, precision and peace of mind.”
Sustainability is now an integral pillar of the risk management process, which means ESG considerations can no longer be analysed in isolation from other factors. CSS said that to provide asset managers with a transparent view of issuers’ ESG practices, reporting must be standardised and integrated into the wider process.
In order to meet this need, the firm claims asset managers must have the ability to test various sustainable investment strategies and gauge the adherence of their portfolios to ESG standards across a wide range of analytics.
CSS remarked, “Firms would do well to create their own unique ESG metrics, including rules-based weighting per pillar, dynamic rules-based exclusion lists and specific considerations based on individual clients, and integrate them into their wider portfolio analysis workflow.”
The company says this approach integrates ESG data into the firm’s overall reporting and analytics, extending from allocation to risk measurement and from performance to stress testing and liquid profiling. End users, CSS said, should seek access to a diverse set of powerful reporting modules capable of generating insightful reports.
This systematic approach integrates ESG data into the firm’s overall reporting and analytics, extending from allocation to risk measurement and from performance to stress testing and liquidity profiling. End users should seek access to a diverse set of powerful reporting modules capable of generating insightful reports.
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