Globally, asset managers and investors are paying closer attention to sustainability, ensuring their investments fulfil a larger purpose than just profitability. This is why the EU enacted the Sustainable Finance Disclosure Regulation (SFDR), which is designed to drive sustainable investments, increase transparency around these investments, and prevent greenwashing.
The SFDR regulation, which took effect in March of 2021, includes a long list of disclosure requirements for environmental, social, and governance (ESG) metrics. It works hand in hand with the EU Taxonomy, a classification system that helps ensure consistent identification of investments that can be characterized as environmentally sustainable.
Most important, asset managers face an important SFDR deadline on January 1, 2023. At that time, several key disclosure requirements will go into effect. Failure to comply with the SFDR deadline could compromise the ability of any asset manager to raise capital across Europe, simply because investors will be less likely to allocate resources to funds not demonstrably engaged in ESG activities.
To meet this deadline, however, asset managers need to overcome four critical challenges with respect to SFDR filing:
1. Collecting data from multiple sources
Complying with the SFDR regulation requires collection and reporting of a substantial amount of information from different realms of business, including ESG and principal adverse impact (PAI) indicators. The sheer number of vendors providing information on several metrics for each vertical means asset managers must have effective data management solutions in place.
2. Specialized data vendors
Many SFDR indicators involve reporting non-financial ESG data. For example, in order to calculate the Carbon Footprint Indicator, an asset manager would need market capitalization data, holding data, and carbon footprint data for a given holding. In other words, asset managers must look beyond the usual financial data vendors.
3. Manual data classification and reporting
Due to the enormous quantity of data and multiple sources involved, it can be extremely difficult to classify ESG and non-ESG data manually. After classification, the data may also have to be manually reported, adding to the overall effort involved in the SFDR filing process.
4. Reporting insights about data collection
SFDR regulations require asset managers to provide insights about their data collection process and data classification criteria. Asset managers must also reveal reporting sources and ensure that data obtained from multiple sources is equal and comparable.
The IVP Regulatory Reporting solution can help asset managers address and overcome all of the SFDR challenges. In fact, it is already helping a number of firms with capabilities such as:
- Direct integration with major ESG vendors
- Effective data management for each metric
- Centralized data quality checks
- Extensive user controls
- Multi-level approvals
- Embedded calculation methodologies
- Complete audit trail
- Robust exception and validation engine
With these capabilities, the solution enables fund managers to streamline and simplify the ESG data sourcing process. The IVP Regulatory Reporting solution not only automates data processing but also provides effective data management for every metric involved, which helps fund managers save time and costs. The IVP Regulatory Reporting solution combined with IVP Regulatory Reporting as a service can also help firms automate 80% of filing processes from form population to final submission.
With the SFDR deadline approaching, it is imperative for asset managers to start these filing processes immediately in order to be SFDR compliant. See how the IVP Regulatory Reporting solution can help right now at Regulatory Reporting or contact us at email@example.com.
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Maximize regulatory reporting efficiency with automation. This solution handles regulatory filings, manages threshold breach disclosures, and integrates seamlessly with enterprise systems and fund admins.
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