ESG: IS IT TIME FOR REDDE RATIONEM?

Bluerating | April 2021

Its name is quite cryptic and rich in consonants: we are talking about the SFDR, the Sustainable Finance Disclosure Regulation. The SFDR is a European regulation which includes ESG disclosure-related requirements for financial market participants and financial advisors. 

And, on 10th March, the SFDR will become the new sword of Damocles hanging over managers and distributors. 

The Regulation intensifies and aligns the reporting requirements of ESG investing for financial market participants at business and product level, thus strengthening transparency. 

The SFDR will probably not be enough to expose those involved in greenwashing. However, it is an important first step towards the promotion of a European market of sustainable products; it is also going to reinforce a system currently dealing with the challenges deriving from climate, environment and social changes.

The Regulation impacts communication considerably, for example through specific requirements concerning offer documents, business communication, periodic reports and websites, which must include the sustainability criteria employed. Among those involved are AMCs.

While ESG-related topics started to gain ground in 2019, today they have become mainstream. Therefore, promoting ESG investments has become a necessity for financial advisors, first and foremost because clients demand them, in particular those who are the wealthiest. 

ESG investments represent a great opportunity to help converting the huge amount of liquid assets on current accounts; above all, those owned by wealthy population segments – affluent and private segments – who hold 85% of the Italian wealth. 

The level of knowledge on ESG-related topics, already on the increase in the last 24 months and stimulated by environmental disasters, has risen significantly after the outbreak of the pandemic (+20%).

A survey conducted by FINER and commissioned by NORDEA shows how the level of awareness on environmental issues (E) is homogeneous among end investors (92%); on the other hand, the level of awareness on governance (G) and social impact (S) is higher among those who own large assets (88% and 76% vs. 61% and 42% respectively).

Reluctance towards the subscription of ESG investments is mostly linked to a lack of knowledge (59%) and the wrong belief of lower revenues (34%).

The distribution system shows large areas of improvement: only one year ago, 45% of financial advisors had yet to delve into the topic of ESGs (source: FINER survey commissioned by CONSOB, January 2018).

Today, financial advisors and private bankers have a responsibility to explain and inform their clients on the meaning and importance of ESG investments. At the same time, they shall be responsible for acquiring information and keeping up to date. 

The future of sustainable investments and humanity depends largely on the awareness of those who promote them and those who subscribe them. 

Dante’s words are today more significant than ever: fatti non foste a viver come bruti ma per seguir virtute e canoscenza, you were not made to live as brutes, but to follow virtue and knowledge.

Nicola Ronchetti