Stockholm (NordSIP) – With the EU’s new sustainable finance regulations come into effect, their implications begin to reverberate across the financial system, as both asset managers and regulators adapting to the new environment. While the initial reactions of Nordic asset managers (AMs) to the new Sustainable Finance Disclosures Regulation (SFDR) suggest they are slowly adjusting to the new rules, there is no reason to expect the market to regulate itself.
In this spirit, reports recently emerged that the Danish Financial Supervisory Authority (FSA) had set up a new team dedicated to sustainability issues. NordSIP reached out to the FSAs of the three Nordic EU countries for confirmation and comments. Compared to Sweden’s Finansinspektionen and to Finland’s Finanssivalvonta, it appears that Denmark’s Finanstilsynet is following its own unique path for now.
No Reorganisation for Finansinspektionen
“The SFDR introduction has not prompted any reorganization,” says Peter Svensson, Senior Press Officer at Finansinspektionen (FI), Sweden’s FSA. “The new regulations are handled within our regular supervisory organization, and of course we are putting a lot of resources into that question right now. But overall we can see that there will a number of new regulations and tasks in the field of sustainability, and this means that we review the need for competence and capacity.”
According to Svensson, there is no hiring push going on at FI to meet the new demands created by SFDR. “This is so far handled within our regular organisation. Some staff members have shifted focus to sustainable finance, both in general and more specifically on new regulations, including the SFDR,” Svensson adds.
It is also early days on the IT front. Asked about how FI was approaching IT solutions to monitor SFDR, Svensson explained that “FI is considering how to analyse the SFDR-related information in the most effective way. How this will be done is too early to say.”
Finanssivalvonta Holds Steady
Finland’s FSA echoes Sweden’s approach. “In the FIN-FSA we will implement the supervision of sustainable risks and sustainable finance disclosure into our current organisation. Sustainable risks will be supervised among other risks and sustainable finance disclosure is one area among other disclosure requirements,” says Nina Männynmäki, Senior Market Supervisor at Finland’s Finanssivalvonta. According to her, Finanssivalvonta is not presently hiring any new staff for this task but is investigating the idea of developing new IT tools.
“However, we have set up a three years project (2020-2022) to implement sustainable finance regulation into the supervision. This current year the project focus on communicating new regulations to supervised entities and educating our personnel,” Männynmäki adds, noting that it is too early to tell what may follow after 2022.
“Because ESG-data is still difficult to compare and to validate, there is clearly a risk of greenwashing. However, I think the new regulation will reduce the risk,” she concludes
A Dedicated Effort at Finanstilsynet
However, Denmark stands out. “We have established a dedicated unit that focuses exclusively on sustainable finance,” confirms Theodor Christensen, Deputy Director Capital Market Regulations at Denmark’s Finanstilsynet and head of the new Unit for Sustainable Finance. “I am leading the unit, and via the division chief for capital market regulation, we report to the deputy director-general for capital markets supervision,” he tells NordSIP.
According to Christensen, the unit currently has four full-time staff and is guided by a three-fold remit. “First, the unit is responsible for supervisory activities related to the SFDR. Second, it contributes to policy development regarding sustainable finance files such as the Green Bond Standard, the Taxonomy Regulation, climate-related benchmarks etc. Third, it has a coordinating role regarding all matters related to the sustainable finance-agenda within the DFSA more broadly. This includes strategy development, liaising with relevant public and private stakeholders, internal coordination activities etc.”
“With such a cross-cutting theme, the effort could have been placed in different parts of the DFSA, but the capital market and investor protection aspects are quite manifest, not least with the SFDR, so we decided that this would be the best place for the unit,” Christensen explains.
“With such a cross-cutting mandate, we are also able to look at the issues in a more horizontal manner and calibrate our supervisory response across parts of the financial sector, in order to ensure that we give adequate attention to sustainability issues in both the banking and pensions sectors say,” he adds.
Finanstilsynet’s view appears to be that the unique specificities of ESG investments and sustainability concerns warrant a dedicated effort. “The SFDR cuts across all the main financial institutions under the DFSA’s mandate,” Christensen says. “One model for supervision could be for the supervisory responsibility to rest with the divisions responsible for each sector. However, we believe that since sustainable finance is a new and quite different field, there is a need for a dedicated unit to build the necessary expertise to effectively conduct supervision.”
“The supervisory tools will essentially be the same as those used for other investor protection files. This includes thematic inspections, taking a risk-based approach to supervision, and enforcement responses such as public notices for companies who break the rules,” he explains. “But it requires quite some subject-matter knowledge to analyze and evaluate whether, a sustainability claim for a financial product is commensurate with the greenness of the underlying parts of the portfolio, for example.”
“We are aware that there are different organizational models within the FSAs across both the Nordics and the EU more broadly. We have had the benefit of earmarked funding to establish the team already from last year, so we had the opportunity to hire new staff dedicated to sustainable finance issues who could thus form the unit. This also allowed us to hire people with a more sustainability-focused background, so we could hit the ground running and be ready for actual supervisory activities immediately after the SFDR came into force,” Christensen concludes.