You can’t read an article lately without the word “COVID” in there somewhere and we are afraid this one is no different.
A clear trend as the COVID-19 pandemic has spread throughout the world, is that “sustainability” has moved further into the spotlight. Interest in investments following ESG criteria and the reporting stemming from them have increased. Indeed ESG (Environmental, Social and Governance) and their objectives are challenging the still recent focus on only maximising short term returns.
More than that, Nathalie Dogniez, Sustainable Finance Leader at PwC Luxembourg, who recently co-moderated PwC’s ESG week for Asset Management entitled “How will ESG and sustainability transform traditional and alternative asset management?”, with Frédéric Vonner, Partner at PwC Luxembourg, states that, “ESG and sustainable finance are here to stay and not merely “hype” or a trend that will go away post-COVID-19 crisis. Investors increasingly approach their investments through the lens of sustainability – and the past weeks have demonstrated the resilience of ESG investments. As the topic remains a top priority of the agenda of both the EU and national authorities, who have reiterated their ambitions to accelerate the transition to a more sustainable financial sector, even the most “ESG skeptics” will have no choice but to comply with the new requirements, starting early in 2021.”
As we wrote in our PwC blog, “According to Harvard’s Institutional Investor Survey 2020, ESG risks and opportunities played a greater role for investors in 2020 than investing and engaging with companies (86%). Investors might push companies of all sectors to answer how they are managing and responding to these risks and opportunities. Boards and companies should also be ready to face investor scrutiny on how they approach and report on their exposure to ESG-related issues.”
But above and beyond regulatory requirements, investors increasingly care about how they can do good when investing. Nathalie Dogniez explains that the current economic crisis caused by the COVID-19 pandemic will likely push – if it has not already – many investors to reevaluate both short and long-term portfolio strategies, and companies to reevaluate their sustainability priorities.
“Sustainable finance is a massive transformation journey - and the train is leaving the station now, with the first key milestones in a few months,” Nathalie Dogniez says. “Changes to products and services will be drastic - implementation will be challenging. And remember, it is not a compliance exercise but a strategic move: the winners will be the front runners, those who will anticipate their customers' ESG preference!”
The overwhelming success of the various ESG webinars, which took place from 12 to 14 May 2020 in the form of several interactive sessions, gave proof to the rising interest in topics related to the many ESG-related transformational challenges going forward in fund management and fund administration. In the asset management industry, investors continue to push the boundaries of ESG implementation into core processes and investment decisions.
“This was a new type of conference for the new type of world we live in. And hopefully, ESG and Sustainable Finance will more and more become a part of that new world so we can more positively impact our future,” said Frédéric Vonner, Partner, PwC Luxembourg on the ESG week.
There is a growing awareness that having an overall strategy is a priority. This is especially true in light of the fact that one of the challenges going forward is the mismatch in certain reporting deadlines, which will force companies from the financial sector to make decisions now, even if all details are not available on time.
Within that context, Frédéric Vonner said, “ESG and Sustainable Finance do not relate to the usual set of regulations that financial companies are used to. It’s not only one comprehensive set of texts, even if as detailed and complete as the MiFID regulation, that needs to be deployed across an organisation; rather we are talking about several sets of regulations, that address many aspects of financial and non-financial companies, that financial and non-financial players need to integrate and deal with.”
Because of this, having a well-thought out ESG strategy, not only to “just comply” with the regulations, but to leverage on them to be better positioned and therefore benefit more from that deep trend, is not a “like to have” but a must.
“Such a strategy should apply as much to a financial company as to another type of corporate, to the market (re-)positioning of the company, to the way product and services are manufactured and delivered, to the way the data challenge is addressed and to the upskilling of all stakeholders. It is essential this strategy takes in all of these elements, which were all discussed during our ESG week.”
In addition to a long-term strategy, tactical moves need to be made, to ensure that no data shortage will occur for the first mandatory reporting periods, to address a potential lack of preparedness of delegates and service providers and to anticipate reporting definition issues, etc.
“Sustainable Finance is a massive transformation of the financial sector that will affect all of us very deeply, but also very quickly in the coming months. All throughout this week we looked at different aspects of this transformation, starting with the strategic changes you will need to implement, and how you will need to be reviewing, adapting and modifying your products and services and processes, the need to properly assess the risks, how to get the right data and benchmarks, including taxonomy, and last but not least the disclosure challenge. The time to start all of this is now.”