Amendments to the EU’s MiFID II and IDD rules mean that from 2 August 2022, those providing investment advice must now consider sustainability risks in all decision making procedures when providing financial advice, and must identify their clients’ ESG sustainability preferences and manage their portfolios accordingly. Aligning clients’ ESG preferences with the right investments will be a data-driven exercise requiring an understanding of the client’s unique sustainability preferences and evaluating these against the fund’s ESG sustainability credentials. To simplify and standardise all of the data exchanges now taking place between managers and distributors under the EU’s ESG rules, the European ESG Template (EET) was implemented in June 2022.

Asset Managers Have Shown Commitment to ESG Transparency

Although the EET is not a regulatory requirement itself, we know from working with the industry that over half of the asset managers promoting funds in the EU have embraced it and produced the templates. They have recognised that this is best practice to give investors transparency in an increasingly socially and environmentally conscious world. We have been supporting asset managers to prepare and distribute these templates and have witnessed the effort that this has taken, along with all the other demands being made on them from changing regulation. Of the approximately 200,000 actively traded share classes for which we collate data, we have helped some 50,000 to be ready to distribute their ESG data for the June 2022 release of the EET and this number has been on the increase daily ever since.

Managers are putting considerable effort into the collation and accuracy of ESG data ahead of the 1^st January 2023 SFDR Level 2 RTS deadline, but are also getting ready to up their game come the 1^st October 2022 deadline for production of the full EET. Currently asset managers are completing the EET Light, comprising some 60 data fields; however from 1^st October 2022 they will be required to produce the full EET. This will require data for an additional 520 fields encompassing mandatory, conditional and optional fields.

Are the Distribution Channels at Risk of Letting the Side Down?

Arun Sarwal, Chief Executive Officer of Broadridge Fund Communication Solutions, says “Whilst the importance the managers are placing on the SFDR regulation is clear to see, we aren’t seeing the same level of urgency and preparedness to get the information to the end investor across some of the mutual fund distribution channels, including some of the investment platforms. So, it is not surprising that there is a growing unease as the data from EET Light has not yet made it to some of the investors. It would be a shame,” he adds, “after all of the effort that the asset managers have put into collating the data and producing the template, if said data is not making it through to the point of sale for which it is intended.”

With EET now established as best practice, not having ESG data at the point of investment impacts investment analysis in an area that is increasingly important and influential in fund selection. It is not surprising there is growing concern from both the asset managers and end investors. 

We are working with platform clients for whom this is a priority, however elsewhere we are not seeing the flow of information reaching consumers. If distribution channels are not ready to display the EET Light, how ready will they be to display data from a template that is almost ten times longer by October?

Broadridge Fund Communications has over twenty years of supporting fund managers to distribute funds with expertise that includes data management, regulatory reporting and digital visualisation. We are here to help you with your ESG reporting responsibilities, from the monitoring of incoming regulations to the production and distribution of your EET. We deliver technology-driven solutions that drive business transformation for our clients and help them get ahead of today’s challenges to capitalise on what’s next. Our representatives and specialists are ready with the solutions you need to advance your business. For more information please complete the form below.