Sustainable Finance & ESG Services for Asset Management

To combat climate change, Europe is set to be carbon neutral by 2050. This is the aim of the EU Commission. To achieve this, extensive investments in infrastructure and new technologies are needed. The financial market and the banks play a central role in this.

In 2018, the European Union published its “Financing Sustainable Growth” action plan. The aim of the plan is:

1. to redirect capital flows to sustainable sectors,
2. to anchor the management of sustainability risks in risk management,
3. to promote sustainable development and transparency.

The levers of the action plan will fundamentally change the European financial system and its business entities and have an impact on the value chain of asset managers. One thing is clear: sustainable finance in asset management will play an increasingly important role.

The topic of ESG (Environment, Social, and Governance) has so far been more relevant when it came to deciding on an investment form or preparing reports. In the meantime, the issues of sustainability, the environment and climate protection are having a considerable influence on the entire value chain. And at the corporate level, it affects essential functions (including Finance & Reporting, HR, Compliance) of an asset manager. The Disclosure Regulation and other regulations (e.g. UCITS, AIFMD, and MiFID) require that sustainability and social action be implemented at all levels of the company. Of course, this also has an impact on the asset managers’ available data and their system landscape.

In addition to the regulatory initiatives at EU level, the banking supervisory authority (BaFin) is becoming active at the national level. The BaFin leaflet on dealing with sustainability risks defines how best to live sustainability in risk management. Voluntary initiatives also increase the demands on their members. The PRI (Principles for Responsible Investment), which the majority of asset managers in the German market have signed, also obliges signatories as of this year to disclose answers to selected TCFD (Taskforce for Climate-related Financial Disclosures) questions.

German asset managers face a variety of challenges in this regard. In risk management, sustainability risks should be identified at the organisational and fund levels and integrated into decision-making and reporting processes. At the same time, existing systems set up for a handful of sustainable funds need to be scaled and standardised. In this way, the sustainable development of the funds can be presented more transparently. This in turn creates clarity in investment decisions, and the increasing reporting requests can be answered more efficiently.

However, the transition phase to a sustainable economy also offers opportunities. Early movers in risk management can manage expected losses from the rapid devaluation of stranded assets, i.e. unsustainable investments, more effectively by identifying risks early and developing an appropriate strategy.

In addition, the experts also gain a better understanding of promising growth technologies by dealing with scenario analyses, green bonds and the EU taxonomy. Moreover, this is also a good way to score points with investors. This is because investors are increasingly basing their selection of asset managers on their competencies in the area of sustainability.

In order to achieve the EU’s economic goals, investments must be made in infrastructure and new technology companies. Start-ups that develop sustainable technologies need investors. Investors can help the young companies finance the development of new products or open up new markets.

Green infrastructure projects are mainly financed through green bonds, infrastructure funds and direct investments. Asset managers who build up expertise in sustainability in the infrastructure sector and in venture capital and private equity can use this unique selling point to differentiate themselves and position themselves successfully vis-à-vis other investment strategies.

Our Sustainable Finance team advises asset managers on the path to sustainable finance. We can help you with:

• Market analyses to determine site location in relation to competitors as well as trend analyses for ESG products and services
• Building knowledge about sustainability trends and risks with workshops for portfolio managers, risk managers and the executive board
• Location determination, process analysis and process certification for ESG in investment decision-making and risk management
• Develop and implement an ESG strategy that meets your individual needs and suits your organisational form, and fulfils the requirements of regulatory and voluntary frameworks.