Fintechs are stepping in to help asset managers comply with stringent European financial regulations designed to eliminate greenwashing.
In just two months the EU will enforce regulatory technical standards under the Sustainable Finance Disclosure Regulation (SFDR), which demand any organisation offering products with environmental, social and governance (ESG) objectives make clear how these considerations are embedded.
Consultant Deloitte says compliance with the regulation requires “thorough preparation” but notes with the deadline imminent “there is little time to lose”.
In response, global fintech Broadridge Financial Solutions has launched what it calls a “new end-to-end managed service solution” providing “comprehensive support for all aspects of the composition, production, translation, and hosting of required disclosures under SFDR”.
Afzal Amijee, commercial director at Broadridge Fund Communication Solutions, says: “Asset managers continue to navigate a complex and changing regulatory landscape and are under increasing pressure to disclose more ESG data to investors.”
He continues: “A fully managed end-to-end ESG solution comprising SFDR and the European ESG Template (EET) reporting requirements will enable asset managers to efficiently provide data by leveraging automation and existing network links amongst fund distribution channels to ensure they have data and regulatory documents at the right time for their end clients.”
While there is significant pressure on asset managers to meet the compliance deadlines within two months, Patricia Pina, head of research and innovation at fintech Clarity AI, says more oversight of sustainable investment products Is needed.
Pina says: “Additional guidelines and clarity of what sustainable means are always welcome and will help in the fight against greenwashing. Transparency and trust are paramount for consumer confidence in sustainable investment products, yet still we lack access to reliable, precise data to distinguish claims from facts.”
Research from Clarity AI reveals extensive greenwashing across the fund management sector, with a significant proportion of 750 funds that claim to have sustainable investing as their prime objective – those classified under Articles 8 and 9 – failing to meet SFDR’s ‘do no significant harm’ criteria.
Pina says: “Companies that violate global norms such as the United Nations Global Compact (UNGC) principles, derive most of their revenues from activities related to fossil fuel, or are worst performers in areas such as gender diversity, or renewable energy consumption are often included in these funds.”
UK versus Europe
As the EU strengthens its greenwashing regulations, the UK is moving forward with its own Sustainable Disclosure Requirements (SDR).
Last month the Financial Conduct Authority (FCA) published its second consultation paper on the SDR focusing on UK asset managers and their sustainable funds.
The watchdog says: “We are proposing an ‘anti-greenwashing’ rule that would apply to all regulated firms, reiterating that sustainability-related claims must be clear, fair and not misleading.
Under the proposed regime, products will only qualify as ‘sustainable’ if they fit into one of three categories: Focus; Improvers; or Impact.
Unlike, SFDR, the SDR disclosure requirements are more granular, and the UK rules do not require managers reporting under ‘do no significant harm’, taxonomy alignment, or principle adverse impacts.
Pina says: “We welcome that the FCA is learning from the EU experience and has announced that the SDR will be based on a labelling regime. We expect that such a regime can push clarity to the next level.”
