Fund selectors are by no means in pause mode around the introduction of the next level of sustainability regulation, now that SFDR level 2 has been postponed by six months. They are busy collecting data, against a background of seemingly increasing complexity, according to responses to Fondsnieuws from chief operating officer Monique Molenaar-Vader of IBS Capital Allies and chief investment officer Kees Verbaas of Altis Investment Management.
“What will remain in any case is that we are preparing hard to set up our reporting on SFDR and are procuring the right data sources for this,’ said Verbaas (photo) of Altis. Altis, part of NN Investment Partners, carries out the external manager selection and/or monitoring for several dozen institutional managers.
The postponement of the level 2 legislation of the SFDR Directive did not surprise Verbaas, mainly because of its complexity and the need for coordination with the sector. What makes the postponement more complex, he said, is that while the directive has been postponed until January, the EU taxonomy requirements - which are closely linked to the SFDR directive - have not.
Investment firms are required to report information on their Article 8 and 9 classified products from this year. However, the exact criteria for this depend on the requirements of SFDR level 2, which will not be known for another year.
Policy with minimum standards
Altis therefore works with a policy of minimum standards with which advised managers must comply. In practice, implementation differs per investment category, Verbaas noted, “because you are partly dependent on the availability of data to effectively standardise the integration of ESG and the ESG risks in a portfolio.”
“At the same time, we see that many managers are still taking a wait-and-see attitude as long as the interpretation of the European rules is not unambiguous. In practice, this probably means that we will tighten up the implementation of our policy as soon as SFDR level II is in place.”
Molenaar-Vader of IBS Capital Allies (IBS) agreed that the taxonomy and the requirements for reporting will only be further elaborated in the level 2 texts, but expects that the draft texts will not change in the main. IBS will therefore, for its new Article 8 and 9 products, immediately start to develop the product in line with the requirements of SFDR level 2. IBS offers asset management and fund management services to both high net worth individuals and institutional institutions.
Gap with Mifid II Directive
When asked whether, with the postponement of the SFDR, there is a “gap” with the Mifid II directive, which comes into force in August 2022 and forces market participants to ask clients how much they want to invest in “sustainable” instruments, Molenaar-Vader replied in the affirmative. “We think this is a positive development, because we now also see an acceleration in sustainable development at partners and especially fund houses.”
The AFM expects the financial institutions to take the draft texts (from Brussels, ed.) into account when they implement the laws and regulations. “As a financial institution, you try to avoid duplication of effort on the one hand, and on the other hand, you try to implement the measures in time to avoid being too late. The delay does mean extra time, which is especially needed to collect the necessary ESG data and to be able to report on this to our clients.”
“We expect that most of our clients will state in their publications their intention to invest sustainably,” Verbaas explained, “but at the same time indicate that actual implementation in some areas may have to wait until the right data and appropriate investment products are available.”