Introduction
In the realm of finance, Third Party Management Companies, sometimes referred to as Fund Hotels, have typically worked quietly behind the scenes, playing a crucial role in setting up the essential components that make various financial products available to investors. Because these companies are key puzzle pieces in the financial landscape, they are critical in Europe's efforts to establish sustainable finance practices.
We had the opportunity to speak with the team at FCG Fonder, a prominent Management Company in Scandinavia, to learn how their collaboration with Connect Earth is helping their fund managers address sustainable finance disclosure requirements.
The challenge: work against the clock to fulfill SFDR requirements from 44 funds
Within FCG Fonder's responsibility lies the intricate task of managing the administration and backend operations of a whopping 44 funds, boasting a substantial asset pool of over €1.4 Billion. In 2021, the team was getting ready to meet the sustainable finance disclosure requirements and, therefore set out to find the ideal data and software solutions that would help them with the reporting for all their clients.
For Tom Michels, Chief Investment Officer at FCG Fonder, the priority was to source sustainability data that would support pre-contractual disclosures of the funds following SFDR's Article 8 and 9 requirements - more specifically the proportion of sustainable investments on Annex II and Annex III, and, afterward, the periodic reports.
But an even tougher challenge loomed on the horizon. The team would still need to feed the different metrics into the industry-led template called the European ESG Template (EET). This growling task would need to be repeated for all 44 funds every quarter. "Platforms, distributors, and investors were increasingly demanding updated data about sustainability", explains Edward Svensson, Deputy Head of Back Office.
The solution: efficient data automation and transparent communication with clients
Fast forward two years and that is exactly what happened: fund managers are implementing sustainability-related processes and actively asking relevant strategic questions. For the FCG Fonder team, it is rewarding to see how some funds were even able to upgrade from mainstream to Article 8 and started to promote specific sustainability topics.
"It has been easier to engage our clients using Connect Earth because we can show very tangible SFDR data and graphs" – Tom Michels, Chief Investment Officer at FCG Fonder
To tackle the challenge of the EET, since 2022, FCG Fonder has relied solely on Connect Earth's software which automatically inserts different data points such as the portfolios' PAI indicators, business involvements, and the proportion of investment aligned with certain UN Sustainable Development Goals (SDGs) into the EET template.
"We are now more effective with the reporting of the EET data. The EET tool at Connect Earth is easy to work with and easy to understand" – Edward Svensson, Deputy Head of Back Office at FCG Fonder
Moving forward: goal setting and progress tracking of Principal Adverse Impact indicators across all funds
Both FCG Fonder and their clients recognize that PAI indicators are becoming a widespread metric in the financial industry.
"Some clients want to create the PAI statement on the product level, even though it is not required by SFDR" – Edward Svensson, Deputy Head of Back Office at FCG Fonder
To facilitate wider adoption of the PAI indicators across managers of all the funds, FCG Fonder is working on implementing a process of goal setting and annual follow-up for PAI indicators.
It sounds like an ambitious project, but it is nothing that the FCG Fonder team can't handle. Sustainability now represents about 20% of their work, including championing compliance-related tasks and continuously educating themselves about the regulation and industry requirements. The commitment to sustainable finance has been rewarded.
"The fact that we are well versed in the topic has been regarded as an advantage for some of our newest clients" – Tom Michels, Chief Investment Officer at FCG Fonder