ESG in a Service ManCo
What is ESG?
ESG (environment, social, governance) risks
is concept that include various sustainability factors, those related to overall climate change impacts mitigation and adaptation, environmental management practices and resilient duty of care, working and safety condition, respect for human rights, anti-bribery and corruption practices, and compliance to relevant laws and regulations.
The ESG criteria for some time already have become the standard for evaluating sustainable investments. These will allow public and investors to determine whether companies systematically evaluate risks and opportunities from an environmental, social, and governance standpoint.
When combined with a classic financial analysis and due diligence process which is inherently embedded in investing process, these factors can be used to better estimate future performance and risks of the investments on one hand, and on the other hand investors can strategically design their portfolio in accordance with their personal values, goals and sustainability improvement.
Environmental criteria include aspects of a company’s resource and energy consumption, pollution standards and/or emissions. This also includes the evaluation of potential environmental risks that the company is facing on a daily business basis, potential effects of existing and new environmental laws and regulations and how they will handle these risks.
Social criteria are concerned with the values that are defined within a company, for its treatment of stakeholders including employees, clients, subcontractors, and overall community. It can range for obeying and compliance with employment laws to actively enforcing sustainability standards with all of its stakeholders.
Especially with recent scandals and business failures, governance criteria are used to evaluate companies in terms of their management and control structures, business ethics, and transparency of their corporate policies. This includes how they respond to whistleblowers, or management’s attitude toward shareholder codetermination.
Potentially, investors may profit from ESG investments. Besides with good feeling that comes with investing in positive change for long run sustainability, environmental and social issues, considering of sustainability criteria factors means better-informed investment decisions. This is the reason why is focus on ESG disclosure. In terms of profitability some studies show that companies with good ESG management tend to be more profitable and resistant (for instance COVID-19 crisis).
Regulation and role of ESG service ManCo
With new regulation, Management Companies should be assessing not only all relevant financial risks on an ongoing basis, but also all relevant
The aim of furthering sustainable finance and ESG integration, the European Commission introduced a package of legislative measures in 2018 that
includes three key Regulations:
- the Taxonomy Regulation,
- the Disclosures Regulation, and
- the Low Carbon and Positive Impacts Benchmarks Regulation.
The underlying impact assessment to this legislative package also demonstrated that it was necessary to make clear that AIFMs should take sustainability risks and factors into account as part of their duties towards investors.
Role of service ManCo is to be able to help all stakeholders (investors, asset management companies, etc…) in identification, measurement and disclosure of ESG related parameters.
Common ESG approaches
When it comes to different approaches, based on level of sophistication and focus of methodologies, we have at least 3 approaches:
Exclusions (negative list):
Avoidance of investments in controversial business segments or industries, or specific companies that conduct themselves in a manner inconsistent with pre-defined standards and values. For example, this could include companies from the arms industry or those that tolerate unethical working conditions.
Consideration of financially relevant ESG risks and opportunities in combination with a traditional financial analysis at the time of target investing and portfolio creation.
Thematic strategies (target approach/ impact investing):
Besides generating market-oriented returns, impact investing also consider the contribution to the UN’s sustainable development goals. This includes, for example, eradicating poverty and hunger, measures to counteract climate change, and promoting education and gender equality all over the world.
XOLARIS is now in its eleventh year of existence. Having started as a classic back-office outsourcer based in Constance, we have now developed into an international structuring and fund management platform for real assets, with offices in Liechtenstein, Germany, France, Singapore and Hong Kong.
In this regard, our growth is consistently breaking new ground.
When we made the decision to set up KVG, an independent service, in 2014, many people agreed that there would be no market for this service.
Today, the ManCo market is one of the fastest growing markets. Expansion into Asia in 2018 laid the foundations for internationalisation, which, in the capacity of first foreign market participant, reached another milestone in 2020, with relocation of the holding company to Liechtenstein and acquisition of the AIFM licence. As the next AIFM location, Paris is the logical next step of the XOLARIS Group’s success story.
In this context, it was and is always important to us that we remain true to our roots in the real asset business. We will continue to maintain this focus as we move towards becoming a global real asset investment group.
With our new CI, we want to break new ground in this area. The first edition of Market News as well as our podcasts, constitute another step in the development of the Group.
I would like to take this opportunity to thank all my colleagues, without whose great work the success of XOLARIS would not have been possible.
I hope you like our new format as well. Even so, we are open to suggestions and criticism and look forward to your feedback.