1、Sustainable Finance, a new era for asset managers | 1 Sustainable Finance, a new era for asset managers 24 March 2020 2 | PwC Sustainable Finance, a new era for asset managers | 3 Executive summary The last few years have seen a rally towards Environmental, Social and Governance (ESG) products and E

2、SG integration, with sustainable funds capturing a significant portion of inflows in Europe and some asset managers announcing that they will integrate ESG within their entire range of products. And this trend is likely to further accelerate over the coming years among others due to expected regulat

3、ory developments in Europe. On 8 March 2018, the European Commission (the “EC”) issued its “Action plan on Financing Sustainable Growth” (the “Action Plan”). This initiative stems from the Capital Markets Union Action Plan and is part of the broader efforts to connect finance with the specific needs

4、 of the European and global economy for the benefit of the planet and our society. The EU defines “Sustainable Finance” as the process of taking due account of environmental and social considerations in investment decision-making, leading to increased investments in longer-term and sustainable activ

5、ities whilst the plan recognises the key role of “Governance”, there is a clear focus on “Environmental” and “Social” considerations. This very ambitious Action Plan will impact all managers doing business in the EU in one way or another (operations in the EU, products sold in the EU). It aims to: F

6、inance the transition to a more sustainable and inclusive growth the objective is to direct investment into sustainable activities, aimed at leveraging on the financial sector to close the investment gap and finance an economically and socially sustainable economic system; Better manage financial ri

7、sks stemming from climate change, resource depletion, environmental degradation and social issues acknowledging that environmental and climate risks are currently not always adequately taken into account by the financial sector, including the potentially destabilising impact of climate change; Foste

8、r transparency and long-termism in financial decisions sustainability and long-termism go hand-in-hand and transparency is key to ensure that investors can take better informed and more responsible investment decisions rather than focusing on high returns over a short timeframe. In order to fulfil t

9、hese objectives, the EC identified in its Action Plan ten measures including legislative measures that will have a pervasive impact on the financial sector in Europe. Among the ten measures, the most noteworthy are three proposed regulations (in the areas of taxonomy, disclosure and low carbon bench

10、marks) as well as amendments to the existing MiFID II, UCITS and AIFMD level 2 regulations, alongside other consultations and non-legislative measures. The EC had also set up a Technical Expert Working Group (“TEG”) to provide technical expertise and support in the following areas: taxonomy of envir

11、onmentally sustainable activities, low- carbon benchmarks, sustainability factors and risks disclosure and EU green bond standards. These measures will not only affect Asset Managers (“Managers”) and their products, such as investment decisions and product distribution, but also how Managers incorpo

12、rate “ESG” in their business operations and strategy. As such, Managers will be asked to consider and measure both the effect of their products and services on sustainability topics as well as the impact of sustainability topics on their products and services. Once these measures are finalised, the

13、following significant changes can be expected in the market: Investors will be systematically asked about their ESG preferences, and offered products matching such preferences within their target market definition with the vast majority of EU citizens considering climate change as a significant issu

14、e, this measure is likely to have a pervasive impact on the product mix on offer and on the viability of non-ESG products; Two new categories of products will be defined: (i) products that promote environmental or social characteristics and (ii) sustainable investments products. Each category will b

15、e required to disclose how such characteristics or objectives are attained. Two new categories of benchmarks will be introduced: (i) the EU Climate Transition Benchmark and (ii) the EU Paris-aligned Benchmark. All Asset Managers (the “Managers”), Investment firms, Authorised Alternative Investment F

16、unds Managers (AIFMs) and UCITS management companies will be required to review their operating models to ensure sustainability matters and sustainability risks are adequately addressed in governance, processes, remuneration policies, conflict of interest policies, product governance, risk managemen

17、t, etc. “Financial market participants” and “financial advisors” will be subject to new and extensive disclosure requirements not only on “sustainability risks” (impact of ESG matters on the performance of investment), but also on “adverse impact on sustainability factors” (impact of investment deci

18、sions on environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters). These new disclosure requirements will pose significant challenges, in terms of timing, methodology as well as data accessibility and reliability. And new measures can be expecte

19、d in 2020, as the new EU Commission already reiterated the importance of financing the transition to a greener economy (“Green Deal Action Plan”). Expansion of the Sustainable Finance plan and revision of the non-financial reporting directives are envisaged for 2020. The Action Plan will affect all

20、market players, even the most ESG agnostic will have to modify their processes. But, unlike much of the regulatory agenda, it shall not be seen as a compliance exercise market demand is present and will be accelerating but as a real business opportunity. There will be a significant advantage for ear

21、ly movers embracing the change and capitalising on this new paradigm in order to further engage with their investors. This paper explores the impact of the expected measures on AM operations. It includes published regulation drafts and reports available as of 13 March 2020. 4 | PwC Overview of Actio

22、n Plan main measures and timeline 1. Taxonomy or “Framework” Proposal The difficulty to define what is a sustainable product or what is an ESG investment, is a recurring debate amongst the industry professionals. In fact, it is inherent to the nature of ESG and the related investment approaches. Dif

23、ferent approaches are indeed being pursued by Managers in order to meet the demand of investors, depending whether the latter are more or less ESG aware. Such approaches range from negative screening (such as norm- based exclusion), ESG integration, positive screening (best-in-class approach), “Enga

24、gement” (also called shareholders activism) and thematic investing (investing in environmental or social projects/sectors) to impact investing (where investors are ready to sacrifice part of their financial performance as the societal impact is more important for them). ESG products usually combine

25、several of these approaches. The “Taxonomy Proposal” does not aim at defining or classifying ESG approaches, but tries to define sustainable investments through a focus on the activities financed by a financial product, aiming at defining “environmentally sustainable activities”. An activity will be

26、 considered as environmentally sustainable when its contributes significantly to one of the 6 environmental objectives identified by the Commission (climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, p

27、ollution prevention and control and protection and restoration of biodiversity and ecosystems), provided it does not significantly harm any of the other environmental objectives. A Platform on sustainable finance will be created to advise the Commission on the technical screening criteria to be appl

28、ied in order to determine when an activity contributes to (or significantly harm) any of the environmental objectives. The platform will leverage on the work performed by the TEG, who published their final report on the Taxonomy on 9 March 2020. The delegated acts on screening criteria in relation t

29、o climate changes objectives shall be adopted by December 2020 and will apply from 31 December 2021. The technical screening criteria in relation to the other four objectives will be finalised by the end of 2021 for application from 31 December 2022. Three regulations are currently under finalisatio

30、n: TAXONOMY Description Focus on Latest Developments BENCHMARKSDISCLOSURES Proposal for a Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment. Awaiting publication in OJEU following the political agreement reached in Decem

31、ber 2019. On 9 March 2020, the TEG published its final report on EU Taxonomy, with a short user guide. The Regulation entered into force on 10 December 2019. On 18 June 2019, the TEG published an interim report on Climate benchmarks and benchmarks ESG disclosures. The Final version of the report was

32、 published on 20 December 2019. The Regulation will apply from 10 March 2021. The TEG published its report on climate-related disclosures in January 2019. Level 2 (delegated acts) to be drafted in the course of 2020. Criteria for determining the degree of sustainability of economic activities (contr

33、ibuting to 6 environmental objectives) Taxonomy alignment disclosures Market monitoring by ESAs Platform on sustainable finance Minimum safeguards Climate Transition Benchmark = Index whose underlying assets would be selected, weighted or excluded such that the resulting benchmark portfolio is on a

34、de-carbonisation path. EU Paris-aligned Benchmark = Index whose underlying assets are selected in such a way that the resulting carbon emission reductions in the benchmark portfolio are aligned with the Paris Climate Agreements long-term global warming target objective Large scope: Financial market

35、participants and financial advisers which provide investment advice. Transparency obligations for the publication of sustainability information for EU products. From the disclosure of sustainability risks to the adverse impact on sustainability factors. Regulation (EU) 2019/2089 of the European Parl

36、iament and of the Council amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks and EU Paris-aligned. Regulation (EU) 2019/2088 of the European Parliament and of the Council on sustainability-related disclosures in the financial services sector. Sustainable Finance, a new er

37、a for asset managers | 5 Estimated timeline Publication in the Official Journal of the European Union (OJEU) of the Benchmarks and Disclosures Final Texts Methodology Compliance Deadline for Benchmark Administrators Finalisation of inter-institutions negotiations on the Taxonomy File 9 Dec. 2019 30

38、April 2020 Q4 2019 Main Application Date for Regulation on Disclosures Annual report disclosures 10 March 2021 1 January 2022 ESAs to submit draft RTS on Disclosures Regulation Taxonomy Regulation (Climate Change objectives) Taxonomy Regulation (4 remaining objectives) 30 Dec. 2020 31 Dec. 2021 31 D

39、ec. 2022 The taxonomy regulation also includes disclosure requirements for financial products, which will add to the sustainability disclosure requirements imposed by the “Disclosures Regulation” as developed below. All financial products with environmental characteristics or which are promoted as e

40、nvironmentally sustainable will be required to disclose the proportion of their portfolio invested in taxonomy aligned activities. Other financial products will be required to include a disclaimer indicating that they do not take into account the EU criteria for environmentally sustainable investmen

41、ts. Recognising that obtaining the underlying data on the alignment of the activities performed by investee companies will be a real challenge, the regulation also introduces the requirement for large listed EU companies to disclose the percentage of taxonomy alignment as part of their non-financial

42、 reporting. A political agreement was found on the taxonomy proposal in December 2019 and publication of finalised text is expected soon. 2. EU Climate Transition Benchmark and EU Paris-Aligned Benchmark Proposal The “Benchmarks Proposal” will amend the Regulation (EU) 2016/1011 (i.e. the Benchmark

43、Regulation) in order to include a “Climate Transition Benchmark” and also an “EU Paris-Aligned Benchmark” definition to impose ESG factors disclosure requirements. 3. Disclosures Regulation Transparency is a key feature of ESG investment and a key concern of EU regulators hence it is not surprising

44、that one of the first initiatives is to further regulate disclosures. The “Disclosures Regulation” distinguishes between (i) disclosure on sustainability risks applicable to all financial market participants, advisors and all financial products, and (ii) further disclosures applicable to sustainable

45、 investments products and products promoting environmental or social characteristics. “Sustainable investments” are being defined as investments in economic activities that contribute to an environmental objective or a social objective or investment in companies following good governance practices w

46、hilst the taxonomy proposal gives more precision on the definition of Environmentally Sustainable activities (see above). Another category has been added (products promoting environmental or social characteristics) to accommodate for ESG products whose objective will not be confined to invest in sus

47、tainable activities as defined by the EU regulations. Both categories of products will be subject to specific disclosure requirements from pre-contractual disclosures to periodic reports. The Disclosures Regulation also requires disclosure on how the remuneration policies are consistent with the int

48、egration of sustainability risks and does not promote excessive risk-taking in this matter. Moreover, additional requirements will be imposed on large financial market actors exceeding 500 employees, extending the scope of the sustainability disclosure from being the risks “to” the portfolio (risk o

49、f negative impact on portfolio financial return) to include the impact “from” the portfolio (i.e. the impact of all the investment decisions made may have on the society (environmentally or socially adverse factors). Availability of complete and reliable data on the underlying companies is indeed a key concern in this context. Timing will also be challenging, as implementing measures (defining content of disclosures and methodologies to be followed) are unlikely to be finalised ahead of the planned implementation date of the regulatio