Sustainable Finance

Advisory Services for the Financial Sector

The financial sector has enormous potential to promote sustainable business practices. Sustainable finance involves investment decisions that take environmental, social, and governance (ESG) factors into account for economic activities or projects. We offer ESG Due Diligence, advisory services related to SFDR (Sustainable Finance Disclosure Regulation), advisory services concerning the UN Principles for Responsible Investment (PRI), and portfolio management services. 

ESG Due Diligence

ESG Due Diligence (ESG-DD), or Environmental, Social, and Governance Due Diligence, is a process used to evaluate and assess the environmental, social, and governance aspects of a business or investment. The purpose is to identify and understand potential risks and opportunities related to sustainability and responsible corporate governance.

During an ESG-DD process, a company’s environmental impact, social responsibility, and internal governance structures are reviewed. This methodology is crucial for investors, companies, and other stakeholders in making informed decisions and promoting long-term sustainable and responsible business practices.

Sustainable Finance Disclousure Regulation

The SFDR (Sustainable Finance Disclosure Regulation) is part of the EU’s Action Plan on Sustainable Growth and was established to direct capital flows toward sustainable investments. SFDR requires financial market participants to provide transparency regarding sustainability and includes disclosure requirements at both company and product levels.

The two key components of SFDR involve providing information about:

• how sustainability risks are integrated into investment decision-making processes, and
• how principal adverse impacts on sustainability factors are considered, referred to as “Principal Adverse Sustainability Impacts” (PAI).

The regulation was adopted and has applied since March 10, 2021. As of January 1, 2023, the RTS (Regulatory Technical Standards) also came into effect.

Under SFDR’s classification system, a fund is classified as either an Article 6, 8, or 9 fund. Article 6 requires disclosure of how sustainability risks are integrated into funds, regardless of whether the fund is marketed as sustainable or not.

Investments marketed as sustainable, however, must be classified as either Article 8 or Article 9 funds, depending on which classification requirements the financial products meet. Many refer to Article 8 funds as “light green” and Article 9 funds as “dark green,” since the requirements for achieving Article 9 classification are more stringent.

An Article 8 fund under SFDR is defined as “a fund that promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices.”

In accordance with Article 8, financial market participants must include the following pre-contractual disclosures:

• Information on the environmental or social characteristics being promoted, as well as disclosures required under the EU Taxonomy Regulation.
• A description of the environmental and/or social characteristics.
• A description of the sustainability indicators used to measure the attainment of those characteristics.

Article 8 applies to funds that promote environmental and social objectives and that consider more than only sustainability risks as required under Article 6. However, Article 8 funds do not have ESG objectives or sustainability objectives as their core purpose, which is required for classification as an Article 9 fund.

UN Principles for Responsible Investment (PRI)

The UN Principles for Responsible Investment (PRI) is an international organisation working to promote the integration of environmental, social, and governance (ESG) factors into investment decision-making processes. Institutions participate by becoming signatories to PRI’s six foundational principles and then reporting regularly on their progress.

Environmental and social considerations are relevant factors in investment decisions and should therefore be considered by responsible investors. To address this long-standing perspective, PRI has formulated six core principles, which signatory organisations commit to following.

These six principles are formulated as follows:

• Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
• Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices
• Principle 3: We will seek appropriate disclosure on ESG issues from the entities in which we invest.
• Principle 4: We will promote acceptance and implementation of the principles within the investment industry.
• Principle 5: We will work together to enhance our effectiveness in implementing the principles.
• Principle 6: We will each report on our activities and progress toward implementing the principles