Wim Ritz (Zedra): ESG - Disclosing Better Outcomes
Wim Ritz, Global Head of Funds at ZEDRA believes navigating the EU’s rising waves of ESG disclosure and compliance requirements begins within ZEDRA by closely cooperating with their clients. Investments can then not only lead to improved environmental, social and governance outcomes, but also to clients earning more profitable returns. ZEDRA offers this integrated approach through its 'ESG Horizon' solutions.
What are the main disclosure obligations driving the fund industry in the transition to environmental, social and governance investing in Europe?
There are a lot of regulatory changes going on including the disclosure obligation that will be implemented in March. But it’s only one of four important changes underway. The first pillar is the Taxonomy Regulation requiring the establishment of a reliable environmental classification of environmental inputs. The second driver is the Sustainability Related Disclosure Regulation that requires companies in financial markets to disclose to investors how ESG-factors are integrated into investment decisions and internal processes. Thirdly, there are the requirements of the Non-financial Reporting Directive. The directive helps investors, consumers, policymakers, and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business. Finally, there is the ongoing implementation of the Amended Shareholder Rights Directive which will also improve the communication, transparency of voting policies and procedures for fund managers.
"Investors are increasingly depending upon your ESG view and on your ESG-compliance."
How are you helping your clients to prepare for ESG legislation?
Th exercise is 2-fold: internally and externally. “Client Internally”: Increasingly investors are depending on your ESG view and your compliance systems. We help our clients by looking at their internal resources first. We analyse their internal ESG-compliance; how well they run their own company and their funds. “Client Externally”: We then assist them by assessing their investments from an ESG point of view, including those they have in other companies such as private equity and real estate. We weigh up what investments clients have and identify where the gaps are. We then target investments in firms that are the best run from an ESG perspective. That is the long-run strategy - to create the ideal portfolio structure that then only requires minor tweaks to maintain our ESG standard. We are helped by Morningstar’s comparison of funds that shows ESG compliant companies appear to be more profitable than those which are not. We offer our clients the full support to efficiently map and structure all these actions, in line with their ESG strategy. We call it 'ESG Horizon', making sure that our clients never lose sight of it.
What challenges and opportunities for the fund industry are linked to ESG in the coming years?
ESG is here to stay and it’s a chance to correct past excesses. Covid has created an opportunity to improve the situation for everyone. On the one hand, the pandemic has accelerated the potential to create more flexible organizations through digitization decarbonization and agile working. We now know that working at home works; we see that you don't have to travel all the time for meetings. We all want to breathe clean air without a mask to protect us not only from the virus, but also from pollution. Everyone wants access to fresh water and clear seas. We want corporate governance that promotes people who are best in class, regardless of gender or race. Covid has also triggered a reflection on the “social” part of ESG. Loss of income and layoffs have not only negatively impacted families: the economy suffered because of falling demand. Furthermore, a reassessment has been made about “essential workers” – generally low paid jobs – and on how our social frameworks will compensate or revalue them in the future. The industry is presented with unexpected opportunities and challenges in equal measure. Let's remain steadfast.