Tighter regulation accelerates transition

Stricter regulations are not only increasing the importance of sustainability in the way companies conduct their business, they are also becoming an important factor in investing.

These changes are smoothing the way towards a more sustainable world. Companies that fail to adapt run the risk of paying the price when the bill eventually comes due, and this price could be so high as to undermine the financial stability of the company entirely. Analysing how companies deal with environmental and social issues reveals specific risks that go undetected by financial parameters.

‘The EU taxonomy and SFDR allow Europe to offer you certain guarantees as an investor. You can be certain that your investment will take sufficient account of sustainability, and you gain more insight into which investment solutions can be considered sustainable,’ says Kenneth De Bruycker, Responsible Investing Expert at KBC Asset Management.

The SFDR or ‘Sustainable Finance Disclosure Regulation’ aims to increase the transparency of ESG (Environment, Social & Governance) information for investors in order to avoid greenwashing – pretending a company is greener than it actually is – when offering investment products.

Specifically, this means that asset managers must provide additional information and label their investments offering according to the SFDR classification. This allows responsible investment solutions to be compared within and across financial institutions.

‘All of KBC’s responsible investment funds meet the conditions of Article 8 or 9,’ explains Kenneth De Bruycker, Responsible Investing Expert at KBC Asset Management.
 

• Article 6: Conventional funds, which do not promote ESG characteristics or cannot calculate them.

• Article 8: Funds promoting environmental or social characteristics: all funds that promote a combination of environmental and/or social characteristics.

• Article 9: Funds with a sustainable investment objective; all funds that have a sustainable investment objective and whose concrete contribution to this objective can be measured and reported.

In addition, this law defines what a sustainable investment is. According to the SFDR, ‘sustainable investments’ are investments in economic activities that contribute to:

• an environmental objective, such as limiting the use of fossil fuels
• a social objective, such as a gender-neutral remuneration policy

As above, the contribution of an economic activity to one objective must not adversely affect the other objective, and the companies in which investments are made must follow good corporate governance practices.

The time for talking is clearly over. With these regulatory initiatives, legislators are looking to ensure that sustainability is more than just a marketing term.

‘KBC fully supports this approach. Our responsible investment funds favour countries and companies that lead the way in terms of the environment, social policy and corporate governance. Thirty years of experience in responsible investing means we can guarantee a transparent and high-quality selection of responsible investments,’ says Kenneth De Bruycker.