The ongoing rise of ESG in the financial sphere is leading the heads of financial institutions to transform their companies to fit in with the new world. How can firms make a success of ESG?
One of the key drivers of this change is the upcoming changes in MiFID II regulation. According to Allen & Overy, these changes are intended to “mainstream” the consideration of ESG risks by relevant EEA firms and banks, contributing to a push to put “sustainability considerations” at the heart of the financial system.
With this considered, WealthTech firm EveryoneINVESTED recently outlined how the investment industry will be impacted by the changes, how these changes can be seized as an opportunity and how investors can future proof their investment processes.
Some of the key challenges of the MiFID changes lie in the fact that companies must meet the deadline – there is no alternative. Many financial institutions are rushing to meet the deadline, however, as EveryoneINVESTED highlighted, these organisations will have to ready themselves to shift gear when regulators release additional information on level 2 guidelines. The firm added it is not only the ESG questioning that needs to be ready, but also the translation of their advice into portfolios and reporting.
A further challenge for financial institutions will be to ensure they have enough products in line with the ESG preferences of their clients from the first day of the enacted legislation.
While it will be a challenge, it can also be a commercial opportunity. The company said, “We believe the upcoming EU sustainability regulation could prove a commercial opportunity for the investment industry. Indeed, sustainable investments have already proven to trigger the young to invest (more).
“The ESG guidelines will only strengthen their resolve to invest by favoring sustainable businesses. The investment process/product link has to be clear and straightforward enough so that the young see they have a meaningful impact on companies and society.”
EveryoneINVESTED added that to traditional investors, the new regulation may have even a more significant impact. For example, some clients may turn to less complex execution-only investment processes. In contrast, others may not fully grasp the impact of their choices and end up with solutions that do not fit with their expectations.
To compete in this new world, companies will need the technology to succeed. EveryoneINVESTED detailed that the challenge is not to discourage clients from getting through this new questioning and technical jargon – a clever approach will be the key to success. This includes clear communication, behavioural insights and smart default settings.
The firm said, “There is no point in scaring clients and prospects with complicated processes or complexifying investing. People need to understand or relate to the products offered. The last thing we want is to disappoint a client after buying a product.
“When assessing the ESG preferences of a client, behavioural technology will undoubtedly help to digest the complexity of all the choices the clients need to make. Technology will be essential at all stages of the chain, going from profiling to advice, portfolio matching, and reporting.”
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