{"id":9477,"date":"2024-04-16T06:50:34","date_gmt":"2024-04-16T04:50:34","guid":{"rendered":"https:\/\/finalix.com\/?post_type=articles&#038;p=9477"},"modified":"2024-04-17T10:51:10","modified_gmt":"2024-04-17T08:51:10","slug":"regulation-driven-innovation-in-sustainable-investing","status":"publish","type":"articles","link":"https:\/\/finalix.com\/en\/insights\/articles\/regulation-driven-innovation-in-sustainable-investing\/","title":{"rendered":"Regulation-driven Innovation in Sustainable Investing\u00a0"},"content":{"rendered":"\n<h5 class=\"wp-block-heading\">There is an increasing number of regulatory requirements for sustainable investments. While this poses a challenge for banks, it also allows them to innovate towards a more tailored sustainability offering for their clients.&nbsp;<\/h5>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>Banks and asset managers took advantage of the strong demand for sustainable investments before ESG was regulated, making it by far the fastest growing asset class. <\/p>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<div class=\"nv-iframe-embed\"><iframe title=\"Regulation-driven Innovation in Sustainable Investing\" width=\"1200\" height=\"675\" src=\"https:\/\/www.youtube.com\/embed\/0qbDxaub5EM?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/div>\n<\/div><\/figure>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>In 2022, global AuM totaled approximately USD 50 trillion. Because of recent geopolitical tensions, including the Ukrainian-Russian conflict, there has been a decline in ESG-related AuM. Yet, forecasts anticipate a strong rebound following the resolution of these conflicts.&nbsp;<\/p>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h5 class=\"wp-block-heading\">The Evolution of Sustainable Investments: From Rapid Growth to Regulatory Enforced Slow Down&nbsp;<\/h5>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>Recently, banks and asset managers in the EU, UK, Australia, and Switzerland, have been busy adapting their products and advisory processes to the new regulatory requirements for sustainable investments. As part of the regulation, customer needs were specified. The so-called sustainability preferences do not always reflect the sustainability needs that clients really have. This has led to two distinct developments:<\/p>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ol class=\"nv-cv-d nv-cv-m wp-block-list\" start=\"1\">\n<li>First, the regulation specifies sustainability preferences very narrowly (e.g. EU) and the underlying framework is complex. Consequently, the vast majority of clients at many banks have expressed no interest in sustainable investments. This indicates that the regulation has fallen short of its objective to channel private money towards sustainability.\u202f&nbsp;<\/li>\n<\/ol>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ol class=\"nv-cv-d nv-cv-m wp-block-list\" start=\"2\">\n<li>Second, regulations, like those in Switzerland, provide some flexibility in defining sustainability preferences. Many banks take advantage of this flexibility to align preferences with existing structures and definitions in IT systems that comply with already existing requirements, e.g. like the ones defined by the EU. As a result, customer needs play a subordinate role, with operational efficiency often prioritized over identifying sustainability needs that clients understand and can relate to. Consequently, it is expected that customers will respond similarly unfavorably to ESG, as seen in the EU.&nbsp;<\/li>\n<\/ol>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>In summary, a growing and robust demand for sustainable investments\u202fis hindered by the complexity of regulation.&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h5 class=\"wp-block-heading\"><strong>Three Losers of the Lack of Sustainable Investments<\/strong>&nbsp;<\/h5>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>This development produces three losers:&nbsp;<\/p>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ol class=\"nv-cv-d nv-cv-m wp-block-list\" start=\"1\">\n<li>The regulator, because it fails to achieve the goal of (co-)financing the transformation through private money flows and to achieve the climate goals. There is an urgent need for adjustments that align more closely with customer needs and simplify regulatory communication for customers.&nbsp;<\/li>\n<\/ol>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ol class=\"nv-cv-d nv-cv-m wp-block-list\" start=\"2\">\n<li>The banks and asset managers, because they are forced by regulations to apply complex definitions that clients hardly understand and thus are held back from servicing strong client interest in this highly attractive topic.&nbsp;&nbsp;<\/li>\n<\/ol>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ol class=\"nv-cv-d nv-cv-m wp-block-list\" start=\"3\">\n<li>The clients, because they cannot satisfy their strong demand for ESG investments since they cannot relate to the investment offerings provided, do not understand them or there are no suitable investment products. Frustrated, they relinquish interest in the topic, reinforcing perceptions of banks as overly complex and unresponsive to their needs.&nbsp;<\/li>\n<\/ol>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h5 class=\"wp-block-heading\"><strong>Seize Opportunities to Innovate<\/strong>&nbsp;<\/h5>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>Sustainable finance may offer tremendous strategic opportunities for banks to innovate if they prioritize the following points:\u202f&nbsp;<\/p>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"nv-cv-d nv-cv-m wp-block-list\">\n<li><strong>Focus on customer-centered sustainability preferences as starting point.<\/strong> &nbsp;<br>Only if clients understand and relate to the offered sustainability preferences, will they enter the ESG client journey instead of opting out. This requires a deep understanding of clients&#8217; sustainability needs and translating regulatory preferences into client-friendly ones. In cases where regulations lack flexibility, banks can offer an alternative ESG framework for all clients with a demand for ESG but who opt out of the regulatory predefined preferences.&nbsp;<\/li>\n\n\n\n<li><strong>Consistent alignment of the product offering and the advisory process with client\u2019s sustainability needs.<\/strong> &nbsp;<br>For the client&#8217;s interest in sustainability to transform into a positive and compelling experience, the bank&#8217;s product offerings and advisory services must consistently align with the client&#8217;s sustainability preferences.&nbsp;<\/li>\n\n\n\n<li><strong>Development of comprehensible impact products that are also geared towards customer needs.<\/strong> &nbsp;<br>This is the most complex area, requiring skills that remain unavailable in many banks. Concerning sustainability preferences, banks need to listen carefully to clients\u2019 aspirations for impact, positive change or similar.&nbsp;<\/li>\n\n\n\n<li><strong>Train client advisors to communicate the topic to their clients competently and enthusiastically<\/strong>. &nbsp;<br>Communication of regulatory details and technical product aspects should be limited to what is essential. Only if client advisors understand the bank\u2019s ESG concept and are convinced that they can generate business and make their clients happy, will they support ESG in their role as a gatekeeper.&nbsp;<\/li>\n<\/ul>\n\n\n\n<div style=\"height:33px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>For more information about this opportunity, contact Dr. Marcus Fenchel and Tobias Merk.&nbsp;&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>There is an increasing number of regulatory requirements for sustainable investments. While this poses a challenge for banks, it also allows them to innovate towards a more tailored sustainability offering for their clients.\u00a0<\/p>\n","protected":false},"featured_media":9481,"menu_order":15,"template":"","veroffentlichungsart":[134],"class_list":["post-9477","articles","type-articles","status-publish","has-post-thumbnail","hentry","veroffentlichungsart-sustainability"],"acf":[],"_links":{"self":[{"href":"https:\/\/finalix.com\/en\/wp-json\/wp\/v2\/articles\/9477","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finalix.com\/en\/wp-json\/wp\/v2\/articles"}],"about":[{"href":"https:\/\/finalix.com\/en\/wp-json\/wp\/v2\/types\/articles"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finalix.com\/en\/wp-json\/wp\/v2\/media\/9481"}],"wp:attachment":[{"href":"https:\/\/finalix.com\/en\/wp-json\/wp\/v2\/media?parent=9477"}],"wp:term":[{"taxonomy":"veroffentlichungsart","embeddable":true,"href":"https:\/\/finalix.com\/en\/wp-json\/wp\/v2\/veroffentlichungsart?post=9477"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}