What should be considered with sustainable financial products? How can you supplement asset management? An overview
To counteract climate change, Europe should be climate-neutral by 2050. This is the EU Commission's goal. Achieving this will require extensive investment in infrastructure and new technologies. The financial market and banks have a key role to play here.
In 2018, the European Union published its "Financing Sustainable Growth" action plan. The aim of the plan is to
The levers of the action plan will fundamentally change the European financial system and its companies and have an impact on the value chain of asset managers. One thing is clear: sustainable finance will play an increasingly important role in asset management.
The topic of ESG (environment, social and governance) used to be more relevant when it came to deciding on a form of investment or preparing reports. In the meantime, the issues of sustainability, the environment and climate protection are having a significant impact on the entire value chain. And at company level, it affects key functions (including finance & reporting, HR, compliance) of an asset manager. The Disclosure Regulation and other regulations (e.g. UCITS, AIFMD and MiFID) require sustainability and social action to be implemented at all company levels. Of course, this also has an impact on the asset manager's data budget and their system landscape.
In addition to the regulatory initiatives at EU level, the banking supervisory authority (BaFin) is also taking action at national level. The BaFin fact sheet on dealing with sustainability risks defines the best way to live sustainability in Risk management. Voluntary initiatives also increase the requirements for their members. The PRI (Principles for Responsible Investment), which the majority of asset managers in the German market have signed, has also obliged signatories to disclose answers to selected TCFD (Taskforce for Climate-related Financial Disclosures) questions since this year.
German asset managers face a variety of challenges in this regard. Risk management should identify sustainability risks at organisational and fund level and integrate them into decision-making and reporting processes. At the same time, existing systems that have been created 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 when making investment decisions and the increasing number of reporting enquiries 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 so-called stranded assets, i.e. unsustainable investments, more effectively by identifying risks early on and developing an appropriate strategy.
The experts also gain a better understanding of promising growth technologies by analysing scenarios, green bonds and the EU taxonomy. It also scores points with investors. This is because when selecting asset managers, they are increasingly focussing on their expertise in the area of sustainability.
In order to achieve the EU's economic goals, investments should primarily be made in infrastructure and new technology companies. Start-ups that develop sustainable technologies need investors. They can support the young companies in financing the development of new products or opening up new markets.
Green infrastructure projects are primarily financed via 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 against other investment strategies.
Our Sustainable Finance team advises asset managers on the path to sustainable finance. We help you with:
Partner, Financial Services, Chief Human Resources Officer, Head of Asset Management
KPMG AG Wirtschaftsprüfungsgesellschaft
