Staying ahead of EU Regulation
“When it comes to the EU’s ambition and regulation on sustainable finance, we at Van Lanschot Kempen are determined to forge a path, travel its length and show the way to others”
Johan van der Lugt, Lead Expert ESG Advisory
The European Union’s determination to achieve climate neutrality by 2050 and “ultimately put financial and so-called non-financial information on the same footing”, according to EU Commissioner Mairead McGuinness, saw a rapidly accelerating amount of new rules and regulations on sustainable finance in 2020. These are of critical importance to Kempen and our clients.
Kempen has been working to not only understand and implement the legislation, but also to ensure our clients get the advice they need to stay ahead of the regulatory curve.
When relevant we also engage with the EU itself to help it improve complex aspects of the legislation wherever we can.
We are proud to take a leadership role in this area, helped by advisors such as Professor Dr Andreas Hoepner who is both academic advisor to Kempen’s ESG Council and an independent member of the EU’s Technical Expert Group (TEG) on Sustainable Finance.
Implementing the EU Regulation
Our two key areas of focus throughout the year were the implementation EU Sustainable Finance Disclosure Regulation (SDFR), which means new requirements for Kempen and our clients on how to disclose sustainability risks and the processes used to manage them, and the approval of the EU Taxonomy and its associated ecolabels and climate benchmarks.
At Kempen we believe that to be sustainable, we must define sustainability. We have therefore been vocal supporters of the concept of an EU taxonomy which aims to provide agreed definitions across capital markets on what is ‘green’ or ‘sustainable’, and what is not. We have participated in industry-wide consultations and set an example by providing transparent information on our website about our own funds’ sustainable investment approaches.
The introduction of our Sustainability Spectrum across all parts of the Van Lanschot Kempen Group has laid the foundations for our alignment with the SFDR. For example, the EU’s use of ‘principal adverse impacts’, that is, activities that do harm and cause sustainability risk, largely matches the definitions and requirements for ‘Level 3 - avoid harm’ on our Spectrum.
Despite best intentions, the SFDR and EU Taxonomy in their current forms are far from perfect and we also engaged with policymakers to offer our advice and expertise, often in collaboration with national investor associations such as the Dutch Fund and Asset Management Association and Eumedion, the Dutch Corporate Governance Forum.
Keeping clients ahead of the curve
To meet the challenge of translating the details of the regulation and explaining its implications to clients, we have published several advisory notes and whitepapers throughout the year including our much-praised ‘Seven Observations on EU Sustainable Finance Regulation’. We have worked intensively with all types of clients, including private clients and those we prove fiduciary services to.
In the first half of 2020, this included producing an advisory document for our fiduciary clients on the latest ESG policies and frameworks. Not only does this help with digesting the regulation but empowers them to better report to their beneficiaries on sustainable investments.
To draw an example, we worked with one of our fiduciary clients, to help them understand and implement EU regulation and create a custom ESG annual report. The report helped them to both comply with EU directives and also to raise awareness of the fund’s focus on climate and labour themes.
We are also working across markets to show how the current raft of EU legislation links to and builds on other international guidelines, principles and reporting frameworks such as the OECD Guidelines for Multinational Enterprises, SDGs, and Task Force on Climate-related Financial Disclosures (TCFD).
Throughout 2021 and beyond, this will continue to be a key focus for us. As global investors, Kempen and its clients ultimately need comparable ESG information for companies beyond the EU in order to meet sustainable finance ambitions, and we will continue to push for higher standards around the world. In 2021 we also expect to work with regulators to identify ways in which investors can account for biodiversity and water impacts in similar ways to climate.
As long-term stewards we need to identify which companies are managing these risks well and can capture the opportunities and therefore are likely to produce strong returns in a changing investment landscape.