There’s an increasing focus in particular on the topic of prevention of greenwashing from regulators, investors, and third parties and on ensuring that disclosures in relation to ESG matters are clear, fair, and not misleading.
ESG is not straightforward for firms to deliver to, even though the sentiment is largely well received and supported. As is often the case, the execution of the practical solutions to execute on such a wide-ranging strategy are challenging at best.
The global nature of this theme heightens the difficulty of global firms in relation to ESG regulation and preparing for their enhanced obligations and evidential provisions is no simple task either.
Enhanced disclosure requirements under Sustainable Finance Disclosure Regulation (SFDR) commences during 2023. This sees firms within the scope of the regime subject to significant deliverables and proposed changes in relation to restrictions on funds’ names using ESG or sustainability-related terms and potential changes by the Commission to the parameters of the Article 8 classification.
Touchpoints fan out across firms for this purpose and for firms subject to the requirements, it creates a wide-reaching analysis and review program. This culminates in the need to identify, document, update, and enhance – in areas such as fund documentation, customer literature, market literature, websites etc., and any externally-facing listings and classifications.
Changes to the MiFID II suitability and product governance rules in relation to how products and services are ESG classified, then leads into practical considerations and controls. Evidencing how firms integrate this to areas such as target market processes and manufacturer/distributor governance activities will remain critical for proving compliance and good consumer outcomes.
Data can be a key component, as is being able to identify touchpoints, impacts, and demonstrate evidential provisions of compliance.
SFDR and the EU Taxonomy Regulation set the ground rules and the momentum will continue to ensure ESG stays prevalent and with traction from the industry to deliver against the UK objectives in this regard.
The forthcoming Corporate Sustainability Reporting Directive (CSRD) in 2025 will formalise detailed ESG reporting requirements, in turn setting the standards and expectations for firms to report on ESG-related matters including emissions, human rights impacts, and ESG governance processes.
In the meantime, data and provisions remain challenging for firms in this area. As pace gathers in 2023, firms will need to rethink their approach on how to deliver and future proof their business, and this will remain a key theme for many years to follow.
Gone are the days of trying to operate with a highly manual review of compliance to the regulations, and manual risk and control management. Firms need to be able to leave no doubt to how they comply, readily evidence their touchpoints with regulation, demonstrate with evidence the proof of compliance, and give tangible evidence that leaves confidence in the customer outcomes being fit for purpose.
To effect this, firms need to ensure they have a sustainable control environment and methodology, striving to keep abreast of all organisational touchpoints. Using a fragmented governance model is likely to cause greater longer term impacts and we would expect audits to make findings and suggestions to management teams across the industry to raise the bar in terms of governance and control capabilities. Once firms have an automated solution, demonstration of change, control, evidence, and data accuracy should underpin their business operating model.
Grath are ready, whatever the future
Grath understands the challenges, scale, and sheer complexity that stretches across the ESG landscape for firms and we have a practical view of how to embed resilience and compliance throughout your organisation. We don’t come armed with PowerPoints and meaningless directives, we instead discuss your challenges with you and work alongside you to deliver meaningful value.
Not only do we have state-of-the-art SaaS GRC technology solutions that can be rapidly deployed with no build required; we also have an intuitive and highly flexible model of mapping from obligation to risk, controls & process and purpose-built dashboards, reporting, and workflow as standard.
For a resilient, robust and cost-effective automated solution, delivered by a partner you trust, with demonstrable industry expertise, talk to Grath – we think it’s a conversation worth having.
If you’d like to know how Grath’s technology can help you meet your ESG objectives and much more, then we’d love to talk.
Get in touch with us at grath.com/contact