ISS ESG has created a data-rich solution to help fund manufacturers and other asset managers create and manage portfolios that fit their sustainability strategies and comply with evolving global regulations.
The Regulatory Sustainable Investment Solution (RSI) enables market participants to establish the proportion of their investments that adhere to customisable sustainability thresholds. The product if fuelled by data sourced from ISS ESG, the responsible investment arm of Institutional Shareholder Services.
While its creators say the solution is especially suitable for firms reporting under Article 8 or Article 9 declarations of the European Union’s Sustainable Finance Disclosure Regulation (SFDR), it can be as easily applied to oversight codes being developed all over the world.
“It’s not just an SFDR product, it’s globally applicable to numerous different of regimes and jurisdictions and similar regulations that we’re seeing emerging globally,” ISS ESG Associate Vice President for Regulatory Solutions Product Development Thomas Harding told ESG Insight.
“We attempt to stay very much on top of those regulatory developments as they come in, and in many cases wherever possible, anticipate and scenario-plan regarding some of those developments to be as proactive as possible in our solutions development.”
In Europe, the SFDR requires portfolio and fund managers to report how much of their financial products and assets meet sustainability thresholds set by themselves. It’s one of dozens of scores and metrics they must offer to comply with the world’s most detailed ESG regulatory framework. While those firms are able to set their own sustainability thresholds, the SFDR also asks them to provide written explanation of how they establish those criteria.
Data feeds
ISS ESG’s RSI provides clients with the data to calculate what issuer constituents in their portfolios meet their criteria and what proportion of those companies’ revenue comes from sustainable activities.
The data is obtained directly from corporate reports incorporated ISS ESG data sets including ESG Corporate Rating, SDG Solutions Assessment, SDG Impact Rating, Climate Data, Energy and Extractives Screening, and Controversial Weapons. Controversial events information is also incorporated within the solution and derived from a norms-based research tool.
The RSI can be used in conjunction with ISS ESG’s SFDR-specific reporting tool. Harding said the RSI had been built with the flexibility to absorb changes to regulatory standards and requirements.
“The ability to tailor the approach to the investor’s own custom sustainable investment strategies is what makes this super valuable to our clients. They’re not restricted to the confines of the taxonomies framework and the taxonomy assessment anymore,” Harding said.
He added, however, that while clients in theory could set a strategy with artificially low sustainability thresholds, the SFDR requires them to explain their methodology, preventing them from greenwashing.
“They have to disclose and be transparent on what their sustainable investment strategy is, and how they have implemented their quantification calculation,” he said.
Clients are given a window into their portfolios via a digital and interactive dashboard that enables them to apply their own sustainability thresholds through a drop-down selection of criteria screens. They can use pre-set strategies or create their own. They will then be shown the performance results graphically.
While clients can access the RSI now, Harding said new iterations could be expected next year as new functionality is added and as regulations change. Among updates already in the will be the capability to screen individual fixed-income issuance as well as green bonds. Specialists in the fields are already working on those refinements.
ESG regulations are “a novel subject for everybody”, he said. “Everybody’s kind of learning a little bit as they go along. And that’s somewhat due to the nature of the evolving regulations themselves.”
