Clearwater Analytics releases report on how ready European asset management industry is for SFDR and ESG transparency initiatives

Global SaaS provider Clearwater Analytics and global consulting firm Sionic have announced the results of a joint Europe-wide study exploring how ready the European asset management industry is for the Sustainable Financial Disclosure Regulation (SFDR) and ESG (Environmental, Social and Governance) transparency initiatives.   

The report is based on a March-April 2021 survey of 21 European asset managers and 14 asset owners, including insurance companies and pension funds. It looks in detail at the current state of readiness to comply with regulation; the changes required to firms’ operations and supporting technology; and the key challenges firms face around data availability and standardisation.  

The key findings show that:  
 
Asset owner key ESG focus areas are:   

  • Reports from managers – 72 per cent of those that receive ESG-related reports from managers would prefer to standardise reports across managers. Only 18 per cent are currently able to do this.   
  • Manager assessment and monitoring – 50 per cent of the sample have ESG specific exclusion policies of whom 64 per cent are monitoring against these restrictions manually, with a preference to automate where possible.  
  • Internal reporting – whilst 79 per cent of firms are incorporating ESG-related info into board reports for example around carbon footprint, this is at early stages and will evolve and mature over time.  

Asset managers are focusing on:   

  • 80 per cent on front office analytics.  
  • Client reporting – 90 per cent need to comply with SFDR and only 14 per cent have identified an appropriate data source for the indicators.  
  • Compliance and monitoring – a third are extensively including ESG limits in their checks and a further 47 per cent plan to enhance this area.  
  • United Nations Principles for Responsible Investing (UN PRI) and Taskforce on Climate-related Financial Disclosures (TCFD) are the initiatives that have gained most traction, with 85 per cent of asset managers looking to address SFDR and TCFD together.  
  • Data is the biggest challenge for both firm types – coverage, consistency and comparability ranking as the most cited issues.  
  • External data providers are becoming more vital, with 95 per cent of asset managers subscribing to at least one, averaging five, with 60 per cent aiming to increase this number over the coming year.  
  • Asset owners are subscribing to fewer, with half not subscribing to any and the average being one, however 43 per cent said they were looking to increase.  
  • All asset managers are creating their own ESG data, with over 75 per cent creating both scores and company engagement data, whereas 42 per cent of owners are not producing any internal ESG data.  

Robert Keller, CFA, Head of Product, Investment Management at Clearwater Analytics, comments: “It’s clear that asset managers and asset owners are actively making significant enhancements to their operating model to support sustainable investment activities. But we believe that the increasing in-flow of funds into ESG-related products and growing regulatory interest mean that this is just the beginning of a tsunami of change.”  

Clare Vincent-Silk, the report’s lead author and Partner at Sionic, adds: “Sustainable investment is increasing the challenges on data functions that are dealing with disparate, incomplete ESG data sets which are being used as inputs to internal modelling, exclusion checks and reporting. Firms need to have in place an efficient and effective operating model, ensuring that their technology and data platforms offer the flexibility and scale to cope with this evolving type of investment activity, while providing an enhanced internal or external client experience.”