Since JTC began its journey to integrate environmental, social and governance (ESG) into its service offering, the whole topic of sustainability has become a key consideration for both our company and our clients.
The question is how we move forward? And what next for ESG?
You might think that we now have all the answers, but this statement is far from the truth as the goalposts continue to shift.
JTC and our clients are facing a period where ESG requirements form a constantly moving target, through changing requirements and changing attitudes from a political perspective.
Continual forward progress
Our own sustainability journey began with JTC’s acquisition of INDOS Financial which had developed its ESG offering for clients in recognition of the potential demands on a depositary on the overseeing of funds looking at sustainability and ESG regulations.
As a FTSE 250 listed firm, JTC had additional motivation to comply with its own reporting requirements as a public company. Combining these two areas of expertise JTC now has a team with the expertise to address ESG for our institutional and private clients.
In Europe, SFDR continues to evolve with consultation on the Level Two regulation with a focus on decarbonisation commitments and the principal adverse impacts of funds.
If you have a greenhouse reduction target, there is likely to be a lot more reporting. Equally the proposed changes to principal adverse indicators will lead to a refinement of content and calculation.
Clients who thought they had bedded in their reporting will need to do further enhancements.
New consultation on quantitative measures
Just to add to the change, there is a consultation on fund name guidelines covering all fund types which will lead to quantitative thresholds being applied to the portfolio depending on the use of ESG and sustainable terminology.
Following Britain’s exit from the European Union, it was sensible to think that UK would avoid much of these complications. However, although benefitting from late mover advantage, the UK equivalent of SDR has yet to be formally defined and may well be subject to further consultation.
The UK may not have to comply until 2025 once fully implemented but this just adds to further uncertainty around optimal business structuring.
If you are a corporate or a manager looking at your own policies, the situation evolves and becomes more complex, as even for organisations with no ESG focus, there is often still a reporting requirement.
Companies are currently grappling with the spaghetti soup of SASB, TCFD and TNFD, often struggling to navigate through with any confidence.
Political headwinds in the United States
In the US, the position is also developing at a pace, but the direction and the final requirements are still not clear.
The SEC began the charge with a focus on ESG funds not meeting or complying with their investment objectives.
However, the position has become further complicated by political pressure questioning the investment objectives of ESG funds and underlying the key requirement of fiduciary responsibility for financial gain.
The political pressure has been strong with some states actively looking to prevent ESG fund activity.
JTC Sustainability Services
JTC have not shied away from assisting our clients in such a complicated political and economic environment.
We have recognised the different sentiment in the US and have focused on sustainability and impact where there is a clear economic delivery to be measured. We have been flexible in our solutions for clients generating bespoke answers to measure specific goals.
We have recently appointed Dr Ed Smith as part of JTC Sustainability Services, providing solutions on both sides of the Atlantic.
In Europe and the UK, we have actively listened to our clients, assisting with polices and procedures at a manager and fund level.
As we look to tailor the best reporting solutions for our clients, particularly with regard to data, we recognise that it is a collaborative effort, working in partnership rather than simply providing an “off the shelf” product.
JTC has particular experience within the industry having undergone its own detailed journey of ESG reporting as a listed company, and when assisting clients with their needs in asset classes which have traditionally been most relevant to ESG focus (infrastructure, energy and real estate).
What is clear is that ESG is not going away, and clients need expertise and experience to help them in their ESG journey just as we continue to develop and strengthen on own journey.
In simple terms, we walk the talk on ESG and sustainability, and we are already looking down the road at what comes next.