Can our asset management and pension scheme clients confidently assess ESG and climate risks, as well as meet regulatory reporting requirements? Their expectations in this area are wide-ranging and CACEIS can support them with appropriate training and comprehensive, reliable data.
A CACEIS survey conducted with Funds Europe in spring 2022, found that only 19% of respondents mentioned that they have the reporting in place to provide full disclosure on climate risks. This is despite the clear acknowledgement of risk, with over 80% of respondents citing that there is a reputational risk if climate commitments are not met.
As regards pensions, the survey showed that data availability was also a recurring theme, with only 11% of UK pension schemes independently verifying their scheme’s exposure to ESG and climate risk.
These survey results highlighted that pension schemes, and asset managers are not yet fully prepared, and are still seeking access to high quality ESG data. These companies also report a lack of tools required to enhance investment decision-making, and fulfil regulatory reporting.
ESG regulations set the tone
After the Paris Accord in 2015, global frameworks, and local regulation have been key to the implementation of targets to achieve net-zero carbon by 2050, with a reduction target of 25-30% by 2030. With now over 2,000 climate laws and polices, our clients within the financial sector are demanding more reliable sustainability data and reporting solutions.
A cornerstone regulation impacting our clients, the Sustainable Finance Disclosure Regulation (SFDR), sets out rules for classifying and reporting on sustainability in investments, to help reorient capital flows towards sustainable investment, whilst minimising greenwashing. Clients who classify their funds under article 6, 8 or 9, must justify their reasoning, and soon share this data in a common template - the European ESG Template (EET).
Further, with EU taxonomy, clients are now having to assess their portfolios’ and issuer companies’ eligibly and alignment with six key environmental objectives, the first being climate change mitigation including climate adaptation.
Strengthening corporate sustainability disclosures at an issuer level is crucial. Local authorities are putting the onus on companies to think about, and report on how they address ESG risk, and climate change risks, as well as potential opportunities. These factors may have a material impact on company operations, reputation, and key financial indicators, and should be made available to investors.
It is clear that Climate Change is a systemic financial risk, and there is growing evidence that shows that unmanaged ESG risks are financially material, and can negatively impact financial performance. Our clients within the financial industry are now trying to appropriately price these risks, and data is a key building block in these quantification efforts.
Clarity AI unlocks ESG and climate risks on the CACEIS Connect Store
Available on the Connect Store via the OLIS portal, CACEIS can now provide its institutional client base with intelligent insights into their portfolio’s ESG and climate risks. Through a fully integrated platform, Clarity AI, can support clients with a comprehensive breakdown of sustainability risks at a portfolio level, and at issuer level, enhancing their investment monitoring and decision-making. This is further complemented by comprehensive SFDR & EU Taxonomy regulatory reporting capabilities. Once subscribed to this simple turnkey solution, CACEIS makes all portfolio data available to Clarity AI.
“Through our CACEIS/Clarity AI partnership, we can now extend the value we bring to client relationships, and the portfolio data we process. This will ultimately help clients demonstrate their sustainability related value add, engage with issues within their portfolio, and achieve their regulatory objectives” adds Scott Foster, Group Product Manager at CACEIS.
Education is the key to unlocking the additional value of data
A final note addressed in our ESG client survey results, is on the topic of education and knowledge gaps. Here 72% of survey respondents suggested the industry could be facing a skills shortage, and more than 20% of asset managers are prioritising the development of educational frameworks to upskill employees.
“At CACEIS, we have an important role to play in helping our clients make sense of data they receive on ESG and climate risks – and this role involves education. To facilitate this, CACEIS Group has launched the Sustainability Centre, a think-tank for employees committed to sustainable development. During our meetings, we discuss the implementation of practical initiatives to enhance the ESG credentials of our services for clients.”, adds Scott Foster.
More locally, in the UK, the CACEIS UK branch has launched two key initiatives.
First is the ‘GreenAware’ initiative - a forum for upskilling the teams on ESG and climate knowledge. The goal is to upskill internal teams, by learning from external speakers, debating case studies, and discussing hot topics. This will strengthen ties with clients, by jointly discussing sustainability challenges.
The second initiative is the launch of the CACEIS Academy, an innovative education platform for asset management, and pension fund board clients, available on the CACEIS website. Here, the team develop and present educational content for clients, such as podcasts and webinars, and provide tailored training modules on areas including ‘Understanding ESG risks’ and ‘How to set a climate risk framework’.
A defining year for sustainable finance
2023 will be a key year for ESG and sustainable finance, as regulatory scrutiny increases, and our clients feel more pressure to justify their competitive edge, and targets made in regards to sustainability. CACEIS has a clear roadmap to support clients on this generation-defining topic, and promote sustainable finance and the transition to net-zero through transparent data, insightful analysis, valuable reporting, and on-demand education.