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SFDR, CSRD and TNFD: How data and communication are key drivers for ESG and Sustainability success

Gregory Yianni, Senior Manager – Sustainability Services, reflects on some of the key issues shaping the ESG landscape, how asset managers are responding to challenges, and what’s next on the sustainability horizon…

There’s no doubt that the ESG landscape is continuing to evolve at pace – the world of ESG today looks markedly different compared to just five years ago – and that is having an impact on both investor attitudes and manager behaviours.

One area that remains in the spotlight in particular is around reporting, disclosure and data management, and there is likely to be ongoing evolution in this space over the coming year. It is however, a highly complex area, as Gregory explains:

“Data quality and transparency is key – some data providers use industry averages and proxies but it’s really important that managers and investors are able to compare like for like based on robust and current data that is meaningful and capable of supporting decision-making. The challenge is that data can become quickly outdated, so it’s vital to know your numbers from the outset so you have a clear starting point and benchmark.”

One of the key challenges thrown up by the sheer pace of change in the ESG world is that it has created regulatory pitfalls, such as inconsistency around reporting requirements – the EU’s Corporate Sustainability Reporting Directive (CSRD), for instance, was previously revised to be arguably less ambitious than previous drafts and more recently there is more uncertainty around the implementation of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) with reporting obligations pushed back

“There’s also a lack of a uniform approach across jurisdictions, particularly UK and Europe,” says Gregory. “There’s no doubt the rapid expansion of regulation has created an operational challenge, and this has been highlighted, for example, through the EU’s latest SFDR consultation and whether to create labels.” in comparison to the UK’s SDR regime following a labelling structure.

Regulation can also be seen as providing opportunities – and there are a number of measures decision-makers can put in place to seize those opportunities.

“Communication is key,” explains Gregory. “That means internally as well as externally with clients and other stakeholders. It is surprising to see so many teams, especially in big organisations, working in silos. Coming together, breaking down those barriers and talking openly about these issues is really important in engendering understanding and alignment.

“Timing is also a big issue – if a manager brings in a regulatory analyst or equivalent early, they will be much better placed to make the most of the opportunities ESG brings.”

Meanwhile, the potential for allegations of greenwashing continues to offer a significant cause for concern amongst managers, with a number of familiar, big corporates being called out for exaggerating or misleading stakeholders – even if that is unintentionally or naively – around the positive impact of their business in recent months, as Gregory highlights:

An obvious threat for asset managers is around being fined by the regulator, but of course the big issue too is around loss of trust from investors which can have long-term repercussions. Understandably, managers are wary of this.

Against that backdrop, this also provides a critical opportunity for managers to revisit and review their existing marketing materials, ensure they have policies in place to reinforce their ESG definitions and put in place training for employees to ensure skills and understanding are of a high level.

Looking forward, there’s no sign that the pace of change in the ESG space will ease up – the rise of nature-based investing under the guidance of the Taskforce on Nature-Related Financial Disclosures (TNFD), for instance, provides a big opportunity but, with some firms likely to have something of a blind spot when it comes to appropriate nature related data, could also prove a challenge.

“Momentum is vital,” says Gregory. “Yes, there are challenges around regulation, a lack of standardisation in ESG frameworks and the threat of greenwashing, but it’s critically important that we continue to work together as an industry. We need to work together, to make sure the guidance and support is there that can give both managers and investors’ confidence and avoid the divestment of assets into non-ESG areas.”

 

ESG and Sustainability Services from JTC

As a leading global professional services business in the fund, corporate and private client sectors, we recognise our own responsibility to embrace ESG and understand the opportunity we have to play a role in supporting our clients throughout their ESG journey.

To find out more, please get in touch with Gregory directly.

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