2023 marks the first year that firms falling under the EU’s Sustainable Finance Disclosure Regulations (SFDR) are required to publish documentation detailing the impact of their investment decisions on a series of sustainability factors.

Despite wide consensus on the need for sustainable finance regulation as a tool for standardising an increasingly complex and convoluted ESG and sustainable investing landscape, the early stages of SFDR have not been without teething problems. Much of this has surrounded Articles 8 and 9, or ‘light green’ and ‘dark green’ fund classifications. However, investors must also grapple with how to understand and report on the negative impacts of their portfolios, or ‘Principal Adverse Impact Indicators’ (PAIs).

As of this year, investors must report on 14 mandatory adverse impact indicators, covering quantitative data points such as CO2 emissions, biodiversity risk, and gender pay gap, in addition to two voluntary indicators.

For many investors, reporting on PAIs represents a reporting and compliance challenge unique to anything else, requiring wide-reaching data to be translated into technical reporting templates.

Data availability and the compliance burden

Data availability has been raised as one of the core challenges to PAI reporting for investors. Research from Cerulli Associates found that 82% of surveyed asset managers pointed to the limited availability of ESG data as a “significant challenge due to the time and resources needed to devote to the initiative.”

This is on top of an already increasing compliance burden for investors. The cost of compliance for financial services companies increased by 193% for financial services companies from 2011 to 2017 and is expected to increase by a further 30% over the next two years. This puts a strain on the resources of financial institutions of all kinds, but the burden falls heaviest upon smaller organisations, which often lack large compliance departments.

There is a need, therefore, to simplify reporting under SFDR and increase data availability.

Automated SFDR reporting with Qvonto and Matter

Qvonto has partnered with Matter to integrate Matter’s SFDR PAI data directly into Qvonto’s automated reporting and compliance solution.

Qvonto offers an automated SaaS solution for the production of high-quality regulatory documents for banks, asset managers, investment firms, management companies, fund administration companies, and financial services advisors.

The partnership allows Qvonto’s clients to automate their SFDR reporting seamlessly. Matter’s SFDR and ESG data and Qvonto’s automated reporting, provided in official templates across 24 languages, reduce the burden on investors regarding data availability and ease of reporting.

93% of compliance leaders believe new technologies will make compliance easier by automating human tasks, removing human error, and making the process more effective. This partnership is an important indicator of this, combining the advanced technology of both Matter’s sustainability insights and Qvonto’s reporting platform.

Fundmarket as a case in point

Fundmarket is already reaping the benefits of the integration. It manages and distributes several investment funds, such as UCITS funds and AIFs, and is also an investment platform where you can invest directly in investment funds.

Nina Trolle Boldt, CEO of Fundmarket, explains, “With the Qvonto and Matter solution for handling the mandatory ESG reporting, Fundmarket can secure full compliance to the 2023 regulation and deliver material of the highest quality to our investors.”

Qvonto also streamlines organisational coordination when it comes to reporting, with Trolle Boldt elaborating, “Operations, legal and finance can all work directly in one system and produce the necessary reports such as SFDR pre-contractual, PAI Tables and EET templates. ESG metrics for our fund holdings are directly incorporated in all reports - and there is full consistency across all templates.”

Fundmarket shows the potential of Qvonto’s automated SFDR reporting solution to ease the compliance burden on financial institutions and demonstrates the practical feasibility of new and emerging sustainable finance regulation.

Sustainable finance regulation should be extensive and ambitious. However, to achieve this, coordination between organisations at the forefront of regtech and ESG is needed to ease the burden on financial institutions. The partnership between Qvonto and Matter does just that.