BUSINESS SITUATION
The client, a sustainability rating agency, wanted SGA to conduct an analysis on sustainability aspects of its coverage universe according to the Sustainable Finance Disclosure Regulation (SFDR), the new European Union (EU) legislative program in the financial services industry. The client required support on mandatory and optional Principal Adverse Impact (PAI) research and a strategic plan for its coverage universe focused on Article 8 and 9 categories of the SFDR regulation. The client also required analyzing the availability of disclosures for relevant information in the coverage universe.
SGA APPROACH
- We conducted in-depth analysis of SFDR’s regulatory technical standard guidelines and a detailed assessment of all PAIs. This included an assessment of a list of environmental and social factors, defined as per the guidelines for each PAI, that should be considered by firms while making investment policies and decisions.
- We developed an exhaustive list of 200+ key performance indicators (KPIs) relevant to the client’s coverage universe
- Mandatory and relevant additional PAIs were categorized into three categories: Environment, Social, and Governance. These three pillars were further sub-categorized into themes like biodiversity, emissions, energy efficiency, human rights, and governance practices and mapped against the list of 200+ KPIs
- Subject matter experts were deployed to aggregate data for the list of KPIs covering a universe of over 5,000 global companies across 65 broad sectors from 100+ countries. The information aggregated was delivered through secured FTPs and on the client’s portal
- We assessed the availability of data and performed trend analysis at various disclosure levels—by region, by country, by sector, and by years assessed.
- Based on the trend analysis, recommendations were provided to the client on companies to prioritize
- Guidance was provided on the criteria of governance practices to map them with article fund documents
ENGAGEMENT
Analysis of companies to ascertain PAI indicators for ESG themes, as defined under the SFDR regulatory technical standard. Analysis was conducted based on publicly disclosed reports and filings, including websites, exchanges, sustainability reports, and policy documents.
BENEFITS & OUTCOME
- Developed and enhanced research techniques for SFDR PAIs
- Designed data aggregation template and formulated guidance documents based on the regulation and the client’s requirements
- Ensured accurate and timely launch of the SFDR platform for the client
- Advised the client regularly on any amendments to the SFDR methodology and updates to the guidelines so as to adhere to the changing regulations
- With the help of our analysis on disclosure availability, the client was able to extend its engagement with their stakeholders
KEY TAKEAWAY
- Decoded the PAI disclosure on different ESG themes
- Granular breakdown and mapping of PAIs to KPIs
- Conducted a performance and disclosure analysis of client’s universe on the key material indicators
