SFDR

“It is not five minutes to twelve, but one minute to twelve,” said Detlef van Vuuren, one of the Dutch scientists who collaborated on the latest report by the UN climate agency, the IPCC. 

According to the report, presented on Monday, countries have to invest three to six times more than currently agreed in measures to reduce greenhouse gases. If that does not happen, the climate goals will be far out of reach. That is this week’s alarming message from the United Nations. 

The financial sector needs to pay more attention to human rights in its activities, especially in its supply chains, a Luxembourg NGO said in a report it presented this week. Industry representatives said the criticism does not yet fully consider new legal requirements that recently entered into force.

Riccardo Lamanna has recently become the Luxembourg Country Head for State Street. He entered the position after spending more than 30 years in the business, having worked in Milan, London and Paris at various institutions, including JP Morgan, Paribas, the Intesa Sanpaolo Group and over the past 11 years, at State Street.

Global asset managers appreciate the framework provided by the green investing taxonomy and SFDR, even if more needs to be done to flesh these out. There is also awareness that Asia is central if global environmental and social concerns are to be addressed. These were some of the broad themes from the “Disclosure Regulations & Their Impacts” panel at the recent Luxembourg for Finance Sustainable Finance Forum. 

SFDR and the green investing taxonomy have been broadly well received across Europe, but what if other economic powers adopt contradictory rules? Some signs of action are emerging from global discussions.

It is very difficult to apply ESG criteria consistently to purely passive investments. Active investments lend themselves much better to this. It is easier to apply an integration approach that goes beyond exclusions in active management. In the end, it is all about the client’s profile, which has to match the risk/reward profile of a fund or strategy and the client’s sustainability preferences. 

Not all European regulations are good. Under the Sustainable Finance Disclosure Regulation (SFDR), part of the EU Green Deal, asset managers must disclose information on sustainability. The objective is thus more transparency and openness in this area. However, from the start the directive was used as a means to classify funds.

The bar for sustainability criteria is rapidly being raised. Article 8 under the new SFDR legislation will become the lower limit for a sustainable product, and the stricter Article 9 will become the standard for truly “green” products and investment funds. And do not underestimate the impact of Principal Adverse Impact reporting.

Investment Officer Luxembourg recently had an opportunity to speak with Stephan Matti (pictured above), Group Head of Asset Servicing & Financial Intermediaries at Quintet Private Bank, about his role and the advantages of offering asset servicing and financial intermediary services from within an organisation that also has a large private banking operation.

Despite the huge cost in terms of human lives and economic damage of the corona crisis, European Fund and Asset Management Association (EFAMA) summarises the performance of the European fund industry as ‘resilient’. 

This was reflected in the Brussels-based organisation’s 2021 Factbook, published this month. It outlines the most important European trends currently affecting the fund industry.