Key takeaways
Independent Asset Managers looking to comply with Article 8 of SFDR usually start their journeys on a similar path: collecting all sustainability metrics of their investee companies, one by one, manually. Website by website. Sustainability report by sustainability report. The second phase is to create models - probably in Excel - to aggregate the data on a portfolio level.
Depending on how many portfolios they manage and how diversified the portfolios are, the hours dedicated quickly add up. And human error is bound to happen.
At some point, the work volume becomes unbearable for a small team juggling other tasks, besides sustainability screening and reporting. Then they might start a process of researching technical solutions that will help with sustainability data collection and/or frameworks to report the KPIs.
At this stage, we, at Datia, frequently hear this question: “Does your solution offer everything I need to comply with Article 8?”.
If you are exactly in this stage of your journey, then continue reading. This article will shed some light on how to identify a provider that can help you comply with SFDR.
How to identify a provider that can help you comply with SFDR?
Well, it depends… on your methodologies
“It depends” does not sound like the most refreshing first answer. But it is an honest answer.
You need to look for a provider that offers the data and frameworks you committed to reporting on - as stated on the pre-contractual of your financial product(s).
On your pre-contractual, you need to define what environmental and social characteristics entail in the context of your product. The regulation expects your definition to be backed by real information and data, which should be used to assess each instrument within the portfolio. Therefore, your team needs to clearly define which indicators and data points matter to your portfolio. And you can choose from a variety of indicators. For example: ESG scores, SDGs contributions, Exclusion criteria, EU Taxonomy alignment, Temperature Scores, etc.
In summary: your provider needs to offer the breadth of indicators you committed to reporting.
Risk management and monitoring
This is the very first step for any financial product working with sustainability - even “Article 6” funds. After all, under “Article 6”, the fund chooses not to promote sustainability objectives, but the regulation still expects transparency in the integration of sustainability risks.
Your team can monitor sustainability risks by defining a methodology. There is no right or wrong methodology. You might choose to select certain exclusion criteria. An concrete example: your financial product will not invest in companies that have more than 5% of revenue from alcohol or companies that have some involvement in sanctioned nations, etc.
Therefore, you need to make sure your provider offers data that can be used for risk monitoring according to your internally defined processes.
Principal Adverse Impact indicators
Under SFDR, Asset Management Companies get to decide whether to consider Principal Adverse Impact indicators in their investment strategy. If you choose to do so, then your organization needs to state it on your website and start publishing a PAI statement each year, by no later than June 30th.
Therefore, you need to select a provider that offers reliable Principal Adverse Impact indicators with as large a coverage of your portfolio as possible. If you invest in smaller companies, make sure that your provider is committed to increasing the coverage of small caps over time.
Sustainable Investments screening
As an “Article 8” fund, you also get to decide, while filling in your pre-contractual, if your financial product will commit to a minimum percentage of sustainable investments.
If you decide to do so, then there is some homework for your team: define a methodology, including KPIs and thresholds, for assessing your proportion of sustainable investments.
You can use raw data and an Excel spreadsheet. However, there are software solutions available in the market to simplify the monitoring and reporting of Sustainable Investments. Check out Datia’s Sustainable Investments Screening Tool, for example.
Sharing data for investors and distributors
All of the sustainability-related data you collect and calculate needs to be reported and published, but another growing trend in the financial sector is that this same data also needs to be shared with investors and distributors. Your investors need this data to create their own PAI statements, and distributors need to pass this information to retail investors’ platforms, for example.
To simplify the process, comes the European ESG Template (EET). It is an Excel-based template that requires tens of hours of preparation. The good news is that there are software solutions available in the market for crafting EET files. Check out Datia’s EET Builder tool, for example.
Is Datia the best provider for you?
Finally, if you came across Datia, then you might be wondering if we are the best provider for you. Here’s a comprehensive list of what Datia offers:
- Data needed for risk monitoring: Controversial Business Involments filtered by percentage of revenue, Sanctioned Nations, UNGC Signatories, ESG Scores, and PAI indicators
- Additional frameworks such as SDGs contributions and Temperature Score that will help you access your products' positive contribution
- PAI indicators from 36,000+ companies, 210,000+ funds, and 210+ sovereign nations (or use your own data)
- Transparent and traceable data for PAI indicators (origin, reporting periods, and links to the sources)
- PAI statement ready to download in pdf or editable format, and multiple languages
- Sustainable Investments Screening Tool that offers a step-by-step guide for you to create a sustainable investment methodology, according to SFDR’s requirements
- EET Builder tool that helps you create EET files in a fraction of the time, thanks to a step-by-step questionnaire and automatic insertion of your funds’ data
