What objectives are behind the launch of an online ESG-self assessment for third party fund managers?

The goal of this newly launched environmental, social and governance (ESG)-dedicated website, accessible under esg.assetservices.pictet, is to facilitate the ESG transition of third-party asset managers and guide them through all applicable regulatory criteria regarding the integration of ESG characteristics or definition of sustainable investment objectives. The goal of this digital platform is entirely client-oriented, with the objective to facilitate and help our clients in their ESG transition. As the sparring partner of our clients, we accompany them every step of the way.

Why has this platform been built specifically for third party fund managers?

The upcoming EU Action Plan (EUAP) on Sustainable Finance, which will come into practice in March 2021, imposes new transparency obligations and periodic reports at both product and manager level in the European asset management space.

Fund managers will therefore be asked for detailed disclosure on how they integrate ESG factors within their investment decision process — prospectus, key investor information document (KIID), annual report, website. This represents a big regulatory impact, requiring time and resources. We strive to preserve smaller-sized, asset managers in the sector — we see ourselves as the asset servicing boutique for active investors — and are motivated to be able to offer this practical solution for boutique asset managers that don’t necessarily have the adequate infrastructure to tackle these ESG regulatory complexities.

How will the new platform guide clients through compliance criteria regarding the integration of ESG characteristics or definition of sustainable investment objectives?

The platform is built around three pillars: The first is around a client awareness role of providing the relevant information from the five main regulatory dimensions of the EUAP: the Sustainable Finance Disclosures Regulation (SFRD), taxonomy, UCITS and the Alternative Investment Fund Managers Directive (AIFMD), the second Markets in Financial Instruments Directive (MiFID II) and Carbon Benchmarks. This allows clients and prospects to gather relevant information and make informed decisions noting that the requirements will differ depending on the ESG strategies targeted by each fund manager. The second part of the platform details the offering and support services that we at Pictet Asset Services can provide and that would help them with the ESG transition of our clients. The third section of the website is reserved for clients and prospects and allows them to self-assess where they stand in terms of compliance, in order to know exactly what further steps, if any, are needed.

What do you anticipate the main challenges to be regarding the upcoming EU SFDR?

This regulation poses, first and foremost, a question of product strategy. The main challenge will be for asset managers to take a step back and evaluate their objectives and adapt their communication as each product classification will have a specific set of regulatory, marketing and investment implications.

Indeed, with SFDR, asset managers will have to classify their products based on the level of ESG integration they wish to adhere to. This regulation means that there will be an integration of a sustainability risk as a minimum standard for all products. Asset managers will have to carry out ESG disclosures at multiple levels to prevent greenwashing, ranging from pre-contractual, periodic, and website.

What will be the main opportunities to come about from this new regulation?

The aim of the EU action plan is to create a transparent and sustainable financial system, all the while avoiding greenwashing. The opportunity for asset managers is to allocate capital flows towards sustainable investment, promote the inclusion of sustainability in risk management, and foster transparency and a long-term outlook into financial and economic metrics.

SFDR will be an opportunity for businesses’ capital-raising activities. Companies that are prepared and aligned with the SFDR’s requirements will have a competitive advantage in the corporate finance market.

What trends are you seeing in clients when it comes to ESG, and how is the new platform responding to that?

Our clients expect us to offer support on new products and services, especially when it comes to elements integrating ESG-factors in client reporting or pre-investing screening for example, but also to provide or enable regulatory assistance and guidance. We are pleased that with this new platform, we respond to both trends.

Looking to the future, how do you see sustainability becoming more prominent in the industry?

Given the regulatory framework set up by the European Commission, there is a clear wish to have a systematic approach in including sustainability in financial products. With initiatives such as the EUAP, European legislators show their willingness to involve investors and asset managers in an effort to reorient capital flows towards the green economy and carbon neutral activities, which moves the sustainability topic closer to the top of the agenda.

Further information

For more information, please contact Sergio Venti.