Current events show that short-term financial success is short-sighted. Sustainable economic practices pay off: for the environment and society, for the company’s own image and for avoiding entrepreneurial risks. The United Nations and the Paris Climate Agreement have defined global guidelines for the transition to a sustainable economy. Guidelines that offer no other way if we want to permanently secure our prosperity. The transition brings many new opportunities for growth and competitiveness, innovation and prosperity, for security and social stability and for an intact environment. The financial industry plays a central role in this.
At the start of 2018, the EU Commission presented the Financing Sustainable Growth action plan based on the Paris Climate Agreement and the UN Agenda 2030. The goal of the action plan is to direct investments towards the restructuring of a sustainable economy. Sustainability should be integrated more strongly into risk management while sustainable financial products should become transparent.
The preferences of investors are shifting more towards sustainable products in the financial markets as well. Sustainability criteria for environmental, social and governance matters (ESG criteria) are increasingly influencing the risks, returns and values of investments. Sustainable economic practices and the management of sustainability risks are part of a successful business strategy.
An important component of the EU action plan is a classification system that defines criteria for sustainable economic activities. This so-called taxonomy defines sustainability requirements for economic activities and investments. The disclosure obligation on all financial product and company levels increases transparency. In 2019, the SFDR directive (sustainability-related disclosures in the financial services sector) harmonised these disclosure provisions for financial market participants and financial advisors. Now the directive specifies which sustainability risks and which adverse effects have to be mentioned in the processes. It also defines which detailed information must be available about the financial products. The SFDR directive becomes applicable in two stages in 2021 and 2022. The draft of the taxonomy regulation was adopted on April 15, 2020 by the EU Council and has since been approved by the EU Parliament. Other initiatives are being planned.
In the future, the ESG criteria must therefore be integrated into the entire process chain for investment decisions and financial advice. This will require a lot of work for banks and financial institutions, since adjustments are needed in many areas. Sustainable finance is becoming a cross-sectoral regulatory topic which banks now have to deal with holistically: from the business and risk strategy to the composition of the customer and investment portfolio to processes and IT systems, ESG is soon becoming important for all areas. BaFin has already announced that starting in 2021 at the latest, it will check whether banks take sustainability risks into account during investment and business decisions.
We analyse the requirements that affect your process and IT landscape in the context of sustainable finance. And we also develop the right solution for you.
Ideally, you link sustainability with your existing GRC domains. We support you in this process and implement a platform for the holistic management of sustainability at your company.
Management now faces the task of making sustainability risks transparent and quantifiable. Additionally, companies must prove compliance with guidelines and regulatory requirements on a recurring basis. Governance, as the second line of defence, creates the framework for efficient value contribution, risk and compliance management.
The management of sustainability risks must be understood as an integral component of the existing three-lines-of-defence model. The second line of defence (governance) is supplemented by a company-specific framework for sustainability management. This means that not only partial areas are covered but that the issue of sustainability can be managed comprehensively and company-wide, uniformly and efficiently.
We strive to operationally anchor the topic of sustainable finance – especially the management of sustainability risks and the transparency and disclosure of the effects of sustainability risks – in a holistic and efficient manner at your company. To this end, we use a tried and tested integrated approach and can rely on experience from many implementation projects.
Business Unit Manager
Phone: +49 6122 9176 0