High levels of pollutant emissions increase global warming and trigger climate change, resulting in the extinction of species, the melting of the ice caps and extreme weather events. Inhumane working conditions in some companies’ supply chains are the subject of discussion in the media, as are unethical conduct, dubious business practices and violations of data privacy. These scandals are not only damaging for companies but are also risk factors for investment decisions. The ESG criteria - environment, social and governance - are the three fundamentals for sustainability. Attitudes have changed considerably towards ESG, which was initially used mainly as a niche strategy that was included from a risk perspective. ESG is no longer solely the preserve of visionaries but forms an integral part of many asset managers’ investment strategies. Sustainable investments can have a measurable "impact" on the sustainable development of our environment and society.
The European Union (EU) believes the financial sector plays a crucial role in redirecting private investment to support sustainable development. There have been increasing signs for some years now that sustainability strategies are catching on. But not quickly and broadly enough to meet the multilateral targets of the Paris agreement that aims to limit global warming to well below 2 degrees Celsius and achieving the 17 Sustainable Development Goals. For this reason, the EU laid the first foundations in 2018 for its 2030 Agenda on Sustainable Development by announcing the Action Plan on Sustainable Finance. The aim is to redirect capital flows into sustainable investments, to focus more heavily on sustainability risks and to promote transparency and a long-term approach.
Under the initial requirements of the Sustainable Finance Disclosure Regulation (SFDR), financial market participants are increasingly obliged to publish their sustainability strategies, methodology and the goals they have achieved in a standardised form. The aim is to encourage clarity and transparency, and at the same time avoid greenwashing. The EU Taxonomy, a classification system, helps group economic activities according to environmental sustainable criteria. It does not, however, shape investment decisions. The reason for this is that the EU has decided to consciously refrain from regulating sustainable investments and to instead allow creative freedom.
The exact set-up depends on your point of view and understanding of sustainability as well as on financial and personnel resources. For some investors, existing sustainability indices are sufficient, others develop their own methodology and may even set up an in-house research team. The approach can accordingly vary depending on the depth of an investor's own understanding of sustainability and associated strategy. Many paths lead from the consideration of individual social or environmental aspects to a comprehensive ESG strategy and finally to a measurable, impact- oriented investment strategy. Sustainability is the ultimate goal that is to be achieved through continuous progress. The extent to which it contributes to overall performance differs according to the strategy chosen.
However, this creative freedom can also prove challenging for investors who are new to the area of sustainability and who are faced with a multitude of players in a heterogeneous market. It soon becomes clear that a lot of the relevant information and data is neither standardised nor disclosed. An increase in the availability of data and reliable information will be a major driving force behind effective sustainable investing in the future. Initiatives such as the Principles for Responsible Investment (PRI) or the German sustainable investment forum “Forum Nachhaltige Geldanlagen” (FNG) are promoting sustainable and responsible investments and supporting the establishment of industry standards.
The market, like sustainability itself, is characterised by diversity and constant progress. In order to meet these advances, investors and asset managers cannot just define their own position on the global sustainability map once. Instead they need to constantly review their status quo and repeatedly adapt to new parameters.
Service providers can help in this process by acting as enablers to the market as well as a competent partners and valuable sources of information on current market developments. In addition, services such as targeted, in-depth reporting help boost transparency significantly. Investors can measure the effectiveness of their approach continuously and reliably, as well as focus on the main areas of portfolio management with the help of reliable data. Expert partners can ensure that an investor’s introduction to sustainable investing is as uncomplicated as possible as well as help support more experienced investors to implement their sustainability strategies.
Sustainability is anchored in the Universal-Investment ESG Office’s strategy that manages all sustainability issues centrally and regularly reports directly to the CEO. As a company, we have an impact on the environment and society, and we therefore monitor the effect of our own business activities, processes and structures, as well as constantly improve them. In addition, as our clients’ service partner, we have the necessary leverage to accelerate advances in sustainability in the financial sector. Universal-Investment has been a member of the PRI since 2017 and, as a service provider, promotes industry adherence to the PRI’s six ESG principles. Furthermore, Universal-Investment joined the German Sustainable Investment Forum (FNG) in February 2020.
We believe the FNG plays a central role in helping advance sustainable investments in the German-speaking euro area. It supports the networking of relevant market players. Universal-Investment aims to promote cooperation in the field of sustainability, to ensure transparency, to establish new standards and to actively help shape these standards. As a fund service platform, the company also connects the key players in the investment chain and can thus generate a valuable data pool. Thanks to our independence, we are the ideal co-pilot to help our clients integrate sustainability standards in capital investments.
(Published February 2021)
Author: Robert Bluhm, Universal-Investment
Date of issue: 8/5/2021
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