Sustainable Finance: What have you done for the world outside?

Sander Boleij is something of a veteran of the sustainability scene in the Dutch financial services industry, having held multi-year roles in that capacity at both ING and Van Lanschot Kempen. He recently joined the Dutch arm of global digital technology consultancy Synechron and is rediscovering the joys of working in a “small, agile, squad: just like back in the day”. We spoke to him on the eve of the Sustainable Finance and Climate Risk Event. He looks back at the early days of sustainability and forward to the latest challenges facing asset managers, insurance companies and other financial services companies in the light of today’s regulatory challenges.

How does sustainability within the financial services sector today compare with when you began to take this subject seriously in your professional life?

I started in sustainability over 20 years ago. We were a small team, with a small group of like-minded clients. No one took us seriously back then. The general opinion was that sustainability was a marketing exercise. We always had a great deal of difficulty getting people in departments such as audit, legal, compliance and risk, for example, to listen to us. Not so today!

There were no ESG regulation back then, what could you do on behalf of your organisation and clients?

Over the years, there were numerous voluntary frameworks which you could sign up to. One of the earliest was the United Nations Global Compact, then came the Carbon Disclosure Project, Principles of Responsible Investment, and the Global Reporting Initiative. These were (and still are) voluntary. You either signed up to them, or you didn’t. We worked with these frameworks for over 20 years.

So, what changed?

The EU regulator stepped in, indicating that we had not been successful enough on a voluntary basis. Not only that but the problems are still here, and still not solved. The first real game-changer was the introduction of the Non-Financial Reporting Directive (NFRD), the EU legal framework for regulating the disclosure of non-financial information by large companies. The framework was adopted in 2014 and made mandatory for the 2017 financial year onwards. There had been quite a bit of greenwashing in the market at that time. The regulator mentioned this many times and implored parties to “stop the greenwashing”.

Which regulations does everyone in the financial sector have on their minds today?

I think primarily the new ESG tables in Pillar 3, the EU Taxonomy regulation, the ECB Guide (which is called a guide, but everyone knows that it is not a guide but something which you must live up to) and the various level 2 requirements for SFDR as described in the Regulatory Technical Standard RTS. Many financial services companies are struggling with these specific regulatory challenges.

Is sustainability all about regulations?

I think there is indeed a danger of only focussing on implementing these regulations. Companies risk forgetting something very important regarding sustainability: namely your own ESG strategy and the client. If you live up to the regulation and you can show that you are compliant — that’s just administration. The real question is: “what have you done for the world outside? What has been the real impact? And what do your clients see in terms of that impact?” I think we should all use the excellent momentum of this moment, to jump away from the turmoil of the regulatory discussions (which generates a lot of new data coming to the market) and re-define ESG strategy. This means doing your utmost as a financial services provider to implement that sustainability strategy and do what you have signed up for: servicing clients and having less negative, or even better, positive impact on the real world outside.

How can Synechron help clients with that?

Perhaps ironically, an ideal starting point is the regulations. The main reason customers get in touch with us is that they have challenges concerning the regulations and seek our help. For example, we are currently creating all the SFDR disclosures for one of our clients who is an asset manager. And during that process you encounter numerous data and interpretation challenges, which we solve together.

What do you see as key stumbling blocks at your clients regarding these disclosures?

The SFDR RTS consists of three parts. The second part is the Principle Adverse Impact (PAI) statement. Banks and asset managers need to publish that statement by the last day of June next year. Take this asset manager, for example, who manages a certain amount of money in a range of mutual funds. By June next year they need to publish the negative footprint of all these funds combined in the PAI statement. And not just the carbon numbers behind the portfolios, but also a range of other ESG aspects such as gender equality and water pollution, and a range of governance indicators.

The PAI statement is now a fixed table —which shows how the regulator is harmonising this information. In the past we would publish the negative impact as far as we could or wanted to. Now there is a fixed table. Asset managers are obliged to report the data contained in that table for all their assets in June each year.

How are you helping your asset manager clients with this specific challenge?

The challenge is twofold: firstly, we help interpret these indicators and calculate the numbers. Secondly: sourcing relevant data. In several cases the data is simply not available yet. Next June we need 2022 data for all those portfolio assets. Every financial is now shopping around data providers to deliver this data. “Do you have PAI data?” is one of the most common questions asked in the industry right now.

What do asset managers do with all this new data once it has been gathered?

For this specific asset manager in my example, we are not only helping them implement SFDR with them, but we are also creating a state-of-the-art data warehouse where they can store all this new sustainability data, alongside all their other company data, to efficiently implement their strategy for the future and increase their competitive edge. This is key to the work we do at Synechron, because our core business is using the power of digital to transform business for the better. I strongly believe data and systems are key to the next decade of sustainability. And there are a lot of systems currently in use at financial services companies which need improving and can be improved. I’m not saying it’s easy.

But I do believe that the way forward is to use all this new sustainability data in an efficient way to help the world at large. And you need the best and latest digital solutions and optimisation strategies to make that happen.

The regulations have clearly changed the approach towards sustainability in the financial services industry, have you seen other notable developments?

In the past, sustainability was seen as a field which gave financial institutions a competitive edge and individual banks, for example, were unwilling to discuss the topic openly. There is today a lot more discussion among competitors at banks, insurance companies and asset managers on sustainability. We are now learning from each other. We all realise that the climate problem is too big. And if that is one change created (unintentionally) by the regulator, then I’m already happy!

What do you hope to gain from the Sustainable Finance and Climate Risk Event?

I really hope to learn new things and meet new people in our sector. I really enjoy hearing about new developments within sustainability, so I will be on the look-out for innovation: and I am sure I will find it there.