Innovative solutions for sustainable investing and reporting
The increasing interest in sustainable investing is reflected in the regulatory framework surrounding sustainability reporting. The Sustainable Finance Disclosure Regulation (SFDR) entered into force on March 10, 2021, and includes new obligations for European financial market participants regarding environmental, social, and governance (ESG) pillars.
The regulation aims to provide more transparency in terms of environmental and social responsibility within the financial markets, notably through the provision of information on the sustainability of financial products. The SFDR requires financial players to enrich their investment policy, which must specify how sustainability risks are integrated into investment processes. Furthermore, they will now have to declare the negative impacts of investment decisions on sustainability factors.
Sustainable reporting is becoming increasingly important in the asset management industry. In addition, regulatory frameworks such as the Sustainable Finance Disclosure Regulation (SFDR) in Europe are requiring asset managers to provide more transparent and comprehensible sustainability reporting.
After some delays to grant market players to align themselves to the new EU taxonomy, SFDR Level 2 finally came into effect on January 1st, 2023, starting to require asset managers to comply with “Regulatory Technical Standards” (RTS), to disclose taxonomy-related information needed and to provide periodic reporting disclosure templates for SFDR Article 8 and 9 products.
This led to a substantial challenge for the fund industry, and in the last six months over 300 investment funds decided to downgrade from SFDR Article 9 into SFDR Article 8 products. As a result, Article 9 funds had shrunk by 40 percent (€175 billion). In addition, over 70% of Article 9 passive ETFs were downgraded to Article 8, increasing the uncertainty among investors that are willing to select sustainable investments.
In this context, FARAD I.M. has developed a unique sustainable analysis service called GreenEthica Sustainable Reporting (GSR). This service targets to deliver an effective, synthetic, and clear sustainability reporting with detailed information on ESG metrics, carbon metrics (CO2 emissions), controversies, PAI, as well as a unique alignment to SDGs. The objective of the analysis is to determine positive or negative contributions of the funds towards sustainability factors and to determine the sustainability impact.
Thanks to its ESG team's expertise, investments are screened to assess whether they are meeting environmental, social, and corporate governance challenges, with a detailed SDG alignment analysis both on individual companies and the aggregated portfolio. GreenEthica Sustainable Reporting provides qualitative comments on the investments in a reliable and objective way.
The GSR system is providing easy-to-understand information on the ESG performance of their investments. The system uses a range of ESG metrics, including carbon emissions, controversies, and alignment with the United Nations Sustainable Development Goals (SDGs), to assess the sustainability of a company or investment fund.
In this regard, it is interesting to mention that on March 28, HubFinance Luxembourg organized the “Wealth Management Awards”. On this occasion FARAD Investment Management received the “ESG Investor Award”. This award recognizes the team's commitment to sustainable investing, which has always been an essential part of their investment philosophy. Winning this award is a significant achievement for the team and serves as evidence of their dedication to sustainable investing.
FARAD I.M.'s GSR (GreenEthica Sustainable Reporting) system was recognized for its commitment to sustainable investing, this service aims to provide an effective, synthetic, and clear non-financial sustainability reporting system.
The jury conducted an in-depth analysis and interviewed the team to unravel the real engagement of the team and the strength of the offering.
When receiving the award, the company's CEO, Daniel Capocci highlighted the importance of sustainability to the company's DNA, and the need for sustainable reporting in the financial industry.
The sustainable reporting offering has ganged increasing interest recently, and there is a significant need in the market for a more transparent and comprehensible sustainable reporting system. In this contest, the GreenEthica Sustainable Reporting is an accurate, transparent, and reliable system.
Overall, Sustainability has been a central theme in the investment industry in recent years but FARAD Investment Management has been active in the field for almost a decade. Sustainable reporting is a crucial aspect of responsible corporate governance, and it is great to see that the FARAD I.M. gained this recognition in the industry.
If you would like to learn more about our sustainable investing products and services offering, please contact CRM@greenethica.eu.
Head of Portfolio Management