The ESG offering of the future must be customizable
Fund sponsors and portfolio managers have individual needs in the context of sustainable investments. Financial institutions that implement their clients' funds have to cover many different factors. How can they do this?
ESG (environment, social, governance) is now well established as a mainstream factor in investment portfolios. Within only a few years, there has been an explosion not only in demand for sustainable investment options, but also in their supply. Exclusions, best-in-class, impact, thematic, stewardship, proxy voting – the list of ESG approaches that can be individually configured according to the expectations of fund sponsors and investors is a long one.
For institutional investors, among others, these options have given rise to requirements in the context of ESG that vary widely by asset class and region in terms of depth, breadth, and frequency. This individuality poses challenges for financial institutions seeking to prepare comprehensive ESG offerings. How can these individual needs be met?
Grouping client needs for ESG investments
This question is also a concern of Credit Suisse Asset Servicing, which sees the dilemma as an opportunity. "In order to find out what our future ESG offering might look like, we have assessed the extent to which various client needs can be grouped," says Tim Gutzmer, Head ESG at Credit Suisse Asset Servicing. According to the expert, there are three options in this context: ESG basic service, ESG topics, and ESG individualization.
ESG basic service comprises assistance with the definition of an ESG investment strategy, disclosure, and the reporting and monitoring of ESG KPI data, while the other two groups put the focus on impact-oriented ESG approaches and topics.
The pillars of a comprehensive ESG offering
"With this kind of grouping as a starting point, it should be possible to build a corresponding offering for our clients," Gutzmer explains. This product range would consist of the following elements:
- ESG data sources and IT architecture: The necessary ESG data coverage for the fund's investment universe and a corresponding IT architecture for the integration of ESG data along the entire value chain is ensured.
- Compliance with ESG legislation: The applicability of a regulatory framework to the underlying portfolios can be validated. This will ensure that the ESG investment strategy selected is in conformity with the relevant definitions and interpretations of the regulatory requirements.
- ESG investment strategy: The ESG strategy is defined. Mandatory elements, like expected impact and potential deficiencies, are highlighted to ensure appropriate disclosure of the ESG investment strategy.
- ESG risk management: Appropriate ESG risk management and continuous monitoring is guaranteed in order to ensure conformity with the disclosed ESG investment strategy.
- ESG reporting: Regular reporting is carried out in respect of the portfolio's ESG performance. The positive impact achieved, as well as deficiencies identified during the reporting period, is also highlighted.
Building on a strong foundation
"An offering like this provides numerous advantages for our clients," Gutzmer explains. "It allows us not only to ensure compliance with regulatory requirements, but also to offer a highly individualized ESG product that opens up access to sustainability-oriented clients and distributors."
Credit Suisse Asset Servicing is currently in the initial phase of the development of this innovative ESG offering. At the moment, the focus is on the implementation of ESG data sources and IT architecture, ESG risk management, and compliance with ESG legislation. "Once these elements have been combined into a strong foundation, potential additional services will be worked out together with our clients," says Thomas Berger, Head of Product Management at Credit Suisse Asset Servicing.