The year in review
7
Regulation, a force for change
The EU’s ESG regulation passed significant milestones in 2021 and there are more coming. How is NAM helping clients navigate these?
The EU’s ESG regulation passed a significant milestone in 2021 with the Sustainable Finance Disclosure Regulation (SFDR) coming into force in March. Since then we’ve seen ongoing development of next-level details around the Taxonomy and the SFDR, and we are moving towards forthcoming changes to MiFID II. These regulatory changes have had various implica- tions for all financial market participants, and asset managers – including NAM – are no exception. The SFDR brought new disclosure requirements and required asset managers to classify funds according to their ESG status. At NAM, our fund classification has been built on our longstand- ing RI Policy and Framework. These include both corporate-level approaches that apply to all NAM funds (including our Article 6 funds) and product-specific approaches, which, combined with the corporate-level overlays, represent the binding commit- ment to ESG that Article 8 classification requires. The RI policy and RI framework were already in place long before the SFDR demanded formal disclosures, and the work carried out by our award-winning RI team over the past years meant we were able to live up to both the letter and the spirit of the SFDR without consequential changes to our investment processes. The SFDR’s primary aim is to give investors transparency in order to minimize greenwashing. With this in mind, we have developed further our ESG reporting to ensure our clients have the information they need about our ESG activities. We have introduced detailed ESG reports for most of our flagship ESG STARS funds, and we also offer impact reports for some of our impact-oriented (Article 9) funds. The next major regulatory changes will be the changes to MiFID II, which will affect the way distributors and advisers interact with their clients. After August 2 nd , 2022, distributors and advisers must offer clients products which meet their sus- tainability preferences as well as their financial objective – or explain why they can’t. It is therefore vital that distributors and
advisors are able to identify which products are eligible under MiFID rules (‘MiFID-eligible’) to be recommended to clients with sustainability preferences.
MiFID II offers three methods – which can be used individually or in combination – of assessing a fund for its suitability for clients with sustainability preferences. These will be products:
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...with a minimum proportion of Sustainable Investments
...with a minimum pro- portion of Tax- onomy-aligned investments
...with an investment strategy that considers PAI elements
and/or
and/or
One of the tools our RI team has developed to ensure our ESG products will be MiFID-eligible is the PAI engine, an add-on to our proprietary ESG database. This add-on allows both our RI team and our portfolio managers to manage and analyse spe- cific ESG metrics, including PAI (Principle Adverse Impact) indi- cators, a new set of ESG data points introduced by the SFDR. As well as enabling the team to consider PAI elements within our funds, the PAI engine plays an important role in identifying a portfolio’s proportion of so-called Sustainable Investments. These are two of the three methods of classifying funds as eli- gible for sale to clients with sustainable preferences. Need to build a MiFID-eligible portfolio? Take a look at Nordea’s ESG STARS funds, your building blocks to a MiFID-eligible ESG portfolio. Nordea’s ESG STARS solutions span different regions and asset classes. We bring the track record, the scale, and the experience your portfolio needs. Take a look at our solutions on page 35.
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