Global financial services provider Apex Group claims being the first in the industry to offset its entire lifetime of carbon emissions. The Bermuda-headquartered firm has offset its emissions back to 2003 with certified and audited offsetting projects, it reports in its first Sustainability Report.
Gaëtan Parchliniak, head of regulatory affairs at Apex’s FundRock, Luxembourg’s largest third-party management company, said Apex wants to hold itself, and the wider industry, accountable for driving positive change. “It is now becoming clear that positive ESG impact does not come at the cost of financial return – in fact data is showing that the opposite is true,” he said.
Apex’s report is a 17-page paper that outlines its ESG measurement and reporting services and its own carbon footprint. It provides an update on workforce diversity and sheds light on emissions across its value chain.
The report also covers ‘Scope 3’ emissions, which includes those from its clients and suppliers, as well as the commutes of 5,777 of its 11,500 employees. Electricity (18.9 per cent) and fuel (15.7 per cent) were responsible for the bulk of its 18.861 metric tons in carbon emissions in 2021.
It is the first such report to be published by a major provider of asset services active in Luxembourg. Under the upcoming requirements under the EU’s Corporate Sustainability Reporting Directive, known as CSRD, all companies in Europe have to issue such reports during the coming years. These reports will also offer investors and fund management firms better data they can use to determine their ESG investments.
IO: Has ESG regulation become an obstacle to running funds?
Gaëtan Parchliniak: “I would not label it as an obstacle. However, it is clearly a new set of requirements that have been recently created, have to be put into effect, and demand new metrics; therefore, it’s not easy to implement.”
“Sustainable finance is a field that requires a new set of skills for financial institutions, and where regulation plays a very relevant role, as an enabler and standard setter. It is also evolving fast. Developing a regulatory framework that fosters standardisation and transparency was and is a key step for the transition towards sustainability. However, sustainable finance being such a complex topic, developing this regulatory framework and ensuring it serves its purpose and tackles its associated issues is also a challenging journey.”
IO: The EU this summer will review the SFDR and sustainable finance rules. How would you like to see this situation addressed?
GP: “We believe that revisions could be made to the legislative framework as it applies to two key investor types. Firstly, for retail investors, the current framework is too complex and does not allow accurate comparisons between funds to be drawn, even if the investment strategies are similar due to the methodology chosen. Secondly, for private equity and venture capital funds, the regulation should be updated to take into account the specificity of all investment strategies in particular unlisted assets and startups. Several of these fund types in Luxembourg have strong ESG objectives on a long term horizon (7-8 years), and this should be taken into account in the Article 9 classification.”
“This is why the proposal from a domestic supervisor to move away from disclosure to a labelling regime should be considered as long as it is managed correctly by public authorities.”
IO: Are fears of greenwashing a factor for managers of ESG funds?
GP: “Last year, managers became more cautious and nervous of being accused of ‘green’ and ‘purpose-washing’– with the main risk being reputational. In addition to that, the fear of regulatory non-compliance, and the need for specialist knowledge and understanding required, is driving many to seek external support.”
“These factors have precipitated a dramatic shift over the last 18 months, from a reliance on unverified, in-house ESG data reporting to the need for independently evaluated and authenticated reporting, especially in areas such as carbon footprint calculation. Companies have realised that taking shortcuts when it comes to ESG reporting, will not deliver meaningful outcomes. As a result, more investment managers than ever are outsourcing their ESG needs, as the complexities of data collection become clear, with many understanding that ‘doing their own homework” in this regard, will only invite further scrutiny’.”
“In Europe, we may also see the rise of “green-hushing”, whereby businesses and investors downplay their environmental credentials, to avoid attention and scrutiny from the media and regulators on other parts of their ESG profile. In many ways this could be as harmful and misleading for the industry as greenwashing has been.”
IO: The political debate in the US around ESG investments is heating up after the state of Florida officially banned such investment with public funds. Do you expect that such sentiment can also become a factor in Europe?
GP: “We’ve been pleasantly surprised at the resilience of the ESG movement in recent months, even in the face of economic uncertainty and politicisation of ESG from a small number of loud voices in the US in particular. Put simply, ESG is just a new label for a set of long-term risks that firms have always had to recognise and manage in making investment and operational decisions.”
“It is now becoming clear that positive ESG impact does not come at the cost of financial return – in fact data is showing that the opposite is true. Regulation will continue to drive ESG priorities and focus, becoming more mainstream across jurisdictions beyond the EU which has led the way with the implementation of SFDR. We consider ESG transparency and disclosure as a profitable investment in the long run. The article 8 and 9 funds that we host via FundRock consider ESG funds as being a profitable strategy and not to be part of ideological joyrides.”
This article is the third in a series taking stock of the current discussion on ESG and sustainable finance in the financial sector in the EU and Luxembourg. The previous articles ran on 16 and 17 May.