The role of the securities services provider in the path towards sustainability
ESG criteria are becoming more important for asset managers and asset owners’ business and for the financial world in general. The securities services provider plays a primary role in the value chain by connecting all the players involved. Roberto Pecora, chief executive officer of Societe Generale Securities Services for Italy, explains how to best play this fundamental role.
Attention to ESG criteria is a necessary step affecting all aspects of our social and economic life. The investment world, wealth management and more generally finance is taking on an increasingly central role in this process, with numbers in sharp growth as demonstrated by the Morningstar European Sustainable Fund Flows report which certifies the launch of 213 new ESG products in the first half of 2020 in Europe. The total number of active funds and sustainable ETFs available to European investors thus rises to 2703, for a total assets under management of € 774 billion.
Social, climatic and responsibility issues of the companies towards the contexts in which they operate are now mainstream also in the development of asset managers and asset owners’ business models, as highlighted by all our talks both nationally and internationally", says Roberto Pecora, chief executive officer of Societe Generale Securities Services for Italy. The Covid-19 pandemic accelerated this trend, also pushing politics and regulators, especially European ones, to enter a new phase of the path towards sustainability.
The regulatory framework
The primary objective of the regulatory action is to define a common European reference framework for assessing compliance with environmental, social and governance criteria. "Among the fundamental pillars of this evolution we shall certainly emphasize the consultation of the European Commission launched at the beginning of 2018 with the aim of creating a common taxonomy for the assessment of compliance with environmental criteria within the Union", explains Pecora, according to which greater clarity will be central to entering the era of green finance.
The implementations of the regulations relating to Taxonomy produced by ESMA during 2020 already represent an important result in this sense, establishing parameters on central issues for the definition of climate sustainability such as financial documentation, ratings, benchmarks, green bond issuance, reporting and indications on retail products. “As securities services provider, we participate in the working groups on the drafting of the ESG taxonomy rulebook,” notes the manager.
A vertical integration
"We are talking about a decisive dynamic for the entire financial world. ESG assessments are at the heart of our clients' strategic choices. The role of the securities service provider is crucial for its ability to contribute to value-added services on reporting, rating, allocation choices, portfolio analysis, touching both the pre-trade and the post-trade. Risk and performance analysis are also closely related to sustainability assessments ", says the chief executive officer of Societe Generale Securities Services for Italy. It is the very positioning of the depositary bank entity that determines its centrality from which derives the task and opportunity to provide complete support to asset managers and asset owners with a vertical cut across the entire value chain for the integration of ESG assessments.
In detail, Societe Generale Securities Services can count on an ESG analytics & reporting tool, on which the bank's specialists have been working since 2016. "The analysis and reporting service we offer to our clients exploits a very important database of data that includes more of 8,000 companies, 300,000 datasets and considers more than 70 different ESG metrics. In addition to a general overview at the portfolio level, it offers a detailed analysis for individual companies and sectors, with a specific focus on the CO2 intensity. The Executive Summary in another available tool developed by Societe Generale Securities Services, a report offering a broad overview of portfolios with a large number of ESG indicators including changes to ESG ratings and a comparison with international standards. The information provided by our tool assumes greatest importance given the great weight attributed to ESG factors in the Next Generation EU plan approved in July 2020 by the European Union", specifies Pecora.
A broader vision
Extent and at the same time modularity of the service offered and customization are the further challenges identified by the CEO to continue innovating in securities services. These also primarily involve the increasing use of ESG assessments by asset management players. “Post-trade support with risk and performance analysis is one of the areas we work on to also provide customization by type of investor. The expansion of the ESG Executive Summary, for example, is already underway and will allow to include a portfolio analysis related to CO2 emissions and an ESG Pension Scheme reporting based on the specifications of the EIOPA IORP II stress test, important in the social security/insurance segment", he declares.
This is just an example of how an important alignment is envisaged on the supply side of asset managers and asset owners in which the securities service provider will play a useful role being the best positioned entity to provide services in line with current regulations and thanks to the ability to bring clarity to a very significant amount of data that requires advanced technological solutions to be organized and exploited. The latter operation that will increasingly take place through outsourcing dynamics for reasons operating machine’ efficiency.
"Our offer in the ESG field has its roots in the concrete actions we carry out as a division and as a Group". Societe Generale was in fact awarded in 2019 by Robeco SAM as the world's number one bank for respect of environmental factors, also ranking sixth out of 175 in the overall ranking which includes all sustainability metrics. "Finally, in terms of diversity, at Societe Generale Securities Services we renew every day our commitment in terms of gender equality, internationality of the teams and inclusion", concludes Pecora.
Article published in Funds People Italia in November 2020.