Financial Institutions

Create impact by doing.

Het doel van CO2-Compensatie

goal

Creating portfolio-specific sustainability information.

Samenwerken

collaboration

Building environmental data from your portfolio to complete unburdening.

Berekenen

Sustainable finance disclosure regulation

Support in compliance with the SFDR.

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our service

Hedgehog Company works with fund managers and portfolio managers to systematically build and map the required SFDR data within the portfolio. We create the right data to meet the new disclosure requirements of the Sustainable Financial Disclosure Regulation. In addition to following the SFDR, companies within your portfolio directly comply with the Corporate Sustainability Reporting Directive (CSRD).

Joost Walterbos

founder Hedgehog, chief environmental compliance

Methodology

We collect the necessary scope 1, 2 and 3 data with which we can steer towards a more sustainable business: the tool for active ownership. Together, we create the necessary data points with which we can quantify the impact of all companies in the portfolio and target sustainability (see box 1).

Finally, we achieve better environmental performance for investors in the portfolio without having to change the configuration of their portfolio. After all, changing the portfolio configuration also does not lead to a reduced investment risk as a result of climate change; outside your portfolio, such companies will continue with their business as usual.

Schaal Life Cycle Analysis

Why?

To meet the future requirements of the SFDR, business data must be created that is currently unavailable or incomplete. Current ESG analyzes do not meet the requirements set by the SFDR (see box 2). The SFDR asks for the correct data that measures the actual, direct emissions of a company. The focus therefore shifts from outside-in to inside-out; The environmental impact that a company has on its environment is also important. Disclosures’ (TCFD) and standards such as ‘Partnership for Carbon Accounting Financials’ (PCAF) are correct developments in reporting the climate impact of investment portfolios. However, these initiatives, as well as the ‘United Nations Principles on Responsible Investments’ (UNPRI) or measurement methods such as ‘Joint Impact Modeling’ (JIM), do not yet offer the tools to be in line with the new regulations or for active shareholding. really facilitate.

what?

A major challenge for all financial market participants (FMPs) lies in the Sustainable Financial Disclosure Regulation, the SFDR. From January 2022, participants of financial markets must have their data in order to be able to publish ‘Principal Adverse Impacts’. These disclosures are mandatory from June 2023. However, almost no organization has insight into the correct parameters such as the so-called scope 1, scope 2 and scope 3 greenhouse gas emissions. The proposed formula for calculating the ‘carbon footprint’ is shown in box 2. In addition, additional impact categories must be added, such as the contribution to air quality, depletion of the ozone layer and water pollution. This gives a more complete picture of your company’s overall environmental impact, where CO2 only looks at emissions that contribute to global warming.

box 1

Current ESG criteria fall short in facilitating ‘active shareholding’. The indicators used quantify incorrect and incomplete information for shareholders to steer towards a correct climate policy for companies in their portfolio. Frameworks such as Taskforce on Climated-Related Financial Disclosures (TCFD) and standards such as Partnership for Carbon Accounting Financials (PCAF) are appropriate developments for reporting the climate impact of investment portfolios. However, these initiatives, as well as the ‘United Nations Principles on Responsible Investments’ (UNPRI) or measurement methods such as ‘Joint Impact Modeling’ (JIM), do not yet offer the tools to be in line with the new regulations or for active shareholding. really facilitate.

Euro

box 2

The formula below shows how the CO2 footprint should be calculated. We calculate direct, company-specific scope 1, 2, and 3 information for your entire portfolio.

View the entire Regulatory Technical Standards document here.

Carbon footprint of portfolio

box 3

The Sustainable Finance Disclosure Regulation (SFDR) has been in force since March 10, 2021. This regulation contains new requirements for the disclosure of sustainability (ESG factors) in the financial sector. The aim of the regulation is to provide investors with more insight into sustainability risks and to make it easier to compare the sustainability of financial products.

The financial sector is struggling to implement the SFDR because:

  • The definitions of what is sustainable are unclear. The SFDR includes three categories for reporting ESG: ecological or social characteristics under Article 8; sustainable investments under Article 9; and a category relating to funds without sustainability features. SFDR is now becoming a kind of ranking of sustainability, while that is not the intention.
  • Current ESG rating companies have major differences in their methodologies. The E (environment) calculation method is also not sufficient for the new legislation at any of the rating companies, see the end of this page.
  • Companies do not yet have the relevant data available because they do not have to report it yet (CSRD). This is difficult for investors. However, it is still possible to ensure that the data is correct, according to the AFM and AMF.

The parties that currently create the data for financial service providers are so-called ESG data providers. However, the problem is that this data comes from general sources through big-data research. This means that when a company opts for sustainability, this is not included in the ESG data. After all, this data is based on, for example, an economic sector, in combination with the production region and the turnover. This inherently means that the investor cannot have data that shows what the direct climate risks are as a result of his investment.

First, the data is not from his investment, but from the industry average of all the companies in his portfolio. Also, a large part of the metrics that determine the E (of ESG) is also the risk that a company, and therefore an entire portfolio, runs as a result of climate change (rather than its contribution to). In the CSDR, this outside-in approach shifts to more inside-out.

Curious how we can help you with your Financial Institution? Contact us!