ESG – Environmental, social and governance

In a time where sustainability and environmental protection are becoming increasingly important to institutional investors, all actors of the financial sector are concerned. With regard to the fund industry, not only the established specialised investment managers, but also more and more mainstream asset managers are under pressure to integrate ESG-criteria into their investment process. With regards to Banks and Private wealth management, the integration of sustainability risk and the appetite of a new generation of investors for products that meet some sustainability standards oblige to revisit the whole value chain.

The global health crisis and the materialisation of non-financial risks all over the globe shed some new light on the importance of environmental, social and governance (ESG) and sustainability matters.

The experts of Arendt’s ESG taskforce, combining legal, regulatory, tax and advisory experts, provide you a complete support concerning your different ESG needs.

ESG Strategy Advice

Arendt helps its clients to develop their own customized ESG strategy that fits their organisations and their goals:

• Understand where they are as an organisation with respect to ESG integration and helping them to define where they want to go depending on their business needs or regulatory constraints
• Support on defining the operational/organisational strategy (e.g. Corporate ESG Approach/marketing sanity check/identification of redflags)
• Redefine their product strategy through gap analysis against regulatory framework, product categorisation or taxonomy alignment exercise in light of fast evolving regulatory framework
• Identify preferential tax treatment
• Review of business plan in the light of ESG
• Identify investment restriction/eligibility against ESG criteria
• Guide on international standards
• Assist with the setting up of Impact strategies

Documenting

Within Arendt, we have been assisting our clients for years with their legal documentation and we are now bringing that expertise to the required changes prompted by the ESG context. We review and update the following:

• Funds documentation (PPM, contracts) to integrate ESG disclosures
• ESG policy/charter
• Investment process/policy to integrate ESG considerations
• Risk management framework to integrate sustainability risks
• Materiality assessment
• Standard ESG due diligence questionnaires
• Engagement/voting rights policy

Communication & Reporting

Arendt helps its clients show what they do well by enhancing their communication towards investors and other stakeholders on ESG matters. The Arendt proposal includes the:

• Internal reporting
• Fund reporting (LPs, GPs and investors communications)
• Annual reporting (integration of ESG-linked KPIs)
• Non-financial reporting
• ESG marketing/communication
• Taxonomy alignment calculation

Education

Arendt assists its clients in understanding what is at stake when discussing ESG and sustainable finance.

Arendt’s specialised legal training business – Arendt Institute – proposes high-level and practical courses in all business areas to a large target audience including top executives, managers and officers.

Arendt also provides Board with regular regulatory update and engage on the future strategy in relation with ESG considerations.

Implementing & Monitoring

Arendt has developed expertise in regulatory and advisory services, which have been put at the disposal of its clients to implement compliance/monitoring and internal procedures such as:

• Establishing of the right governance and incentives and internal processes
• Establishing of ESG funds distribution related services
• Establishing of UNPRI Reporting/use of ESG ratings/relevant KPIs selection (Matrix, limits, etc.)
• Monitoring of the ESG eligibility criteria chosen (ESG investment restrictions monitoring)
• Portfolio screening/measures of performance against goals
• Assessing of taxonomy eligibility and taxonomy alignment
• Establishing of ESG tools/Due diligence

Arendt also helps its clients to implement their ESG Risk Monitoring:

• Updating of risk management policies and risk profiles
• Establishing of KPI
• Identifying of material risks
• Risk assessing of corporate sustainability
• Analysing stranded asset

ESG Due Diligence Manager

To accelerate our client’s transition to sustainability, we offer at Arendt an ESG Due Diligence tool that allows private companies and asset managers to analyse their ESG performance : ESG Due Diligence Manager.

ESG Due Diligence Manager tool is a web-based due diligence tool used to measure corporates’ and portfolios’ alignment with ESG principles and identify their exposure to key sustainability risks.

ESG Due Diligence Manager is primarily designed for private equity managers, asset owners or corporates themselves. It allows portfolio managers to evaluate their portfolios through the direct evaluation of the target corporates, and corporates to evaluate themselves based on a comprehensive ESG due diligence questionnaire.  Through the completion of a due diligence questionnaire, corporates are assessed on their performance in 8 key ESG topics (ESG Commitments, Financial Practices, Anti-corruption, Human Rights, Labour, Health & Safety, Environment, Land Rights).

The requirements of the questionnaire are all based on most relevant international recognized standards such as ILO, IFC, GRI, ISO, UNGCP, SDGs.

The result of the assessment will, in a first phase, give a percentage of compliance (“ ESG Score”) to the ESG Criteria, and an overview of the key sustainability risks (“Risk Rating”), taking into consideration the following;

• The compliance with the requirements of each question -(based on user’s answer)
• The materiality of each question (based on the respective industry of the corporate under assessment)

Reporting is available at corporate level but also at portfolio level.

Check how our new web-based due diligence tool can help you. For more information or the organisation of a demo

ESG in the banking and insurance sectors – Key milestones – Timeline

The ESG framework for the banking and insurance sectors is vast and complex, with many intertwining legal texts and obligations that vary in scope and compliance deadline.

To meet this challenge and stay ahead of the game, you should know about key ESG milestones – and contact our experts if you need assistance!

Sustainability Risk Assessment

In 2018, the EU Commission launched its action plan on sustainable finance, one objective of which is mainstreaming sustainability into risk management. Imagine how climate-related events such as floods can translate into sudden asset repricing, how supply chains may be distorted after child labour allegations, or how real estate exposure might be affected by asset stranding risks following sudden regulatory changes.

CSSF Data collection Exercise

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