To celebrate ‘Sustainable September,’ we are sharing with you ‘The Path to Sustainability’, a four-part article series which examines the key elements that underpin the development of the sustainable finance market: collaboration, inclusion and innovation. This article is the second piece of The Path to Sustainability series. 

Two key challenges facing the market for sustainable financial instruments are the increasingly stringent expectations of regulators and the proliferation of different standards around the world. The top-down regulatory expectations are seen in the EU’s Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy and the European ESG Template (EET), which all aim to increase market transparency in standardised ways. But this is just one jurisdiction. Around the world we can see 35 separate green taxonomies in place so far. Although there is a 70-80% overlap across the various taxonomies, this leaves a 20-30% discrepancy. 

It is our firm belief that the way through the thicket of competing regulations, different data standards against the backdrop of the ever-evolving landscape is collaboration. This belief was affirmed during our time at the World Economic Forum (WEF) in Davos this year. One of the most notable aspects of the Davos meetings is that they provide a chance for business, technology, and civic leadership to come together and find new ways of working together. Our role as one of the world’s leading Financial Market Infrastructures (FMIs), allows us to bring together and engage a coalition of participants across both the public and private sectors, including the WEF as an international NGO and lobbying organization. Such collaboration aims to bring about a systematised process for the issuance and trading of sustainable securities. 

Concretely, we are already undertaking industry initiatives to make this a reality. Our digital fund distribution platform MFEXbyEuroclear now offers a new ESG reporting solution to asset managers, adhering to the European ESG Template (EET). It is the product of our financial and business collaboration with Greenomy, that began in January this year. Greenomy helps corporates, credit institutions and asset managers comply with new European Union sustainable finance legislation by digitalising the data capturing and reporting process. The company also provides data analytics features to help improve sustainability performance and facilitate the redirection of funds towards sustainable activities. 

“Today, more than ever, coordination of strategies between all actors in financial services is key to succeeding in transitioning towards a more sustainable economy, financing this transition, and avoiding sanctions for non-compliance with regulations. Greenomy's partnership with Euroclear aims to bridge the gap between existing and new ESG taxonomies and standards, which will ultimately help real economies transition faster towards a truly sustainable future.”

Alexander Stevens, Chief Executive Officer - Greenomy 

Greenomy has simplified EET reporting, which will allow fund managers to upload their holdings per investment strategy; create EET reports on an ISIN level; comply with regulatory ESG reporting requirements and enable the dissemination of EETs to stakeholders and investors.  

This collaboration between Greenomy and MFEXbyEuroclear, addresses three different facets of sustainable finance, namely the creation of the data (Greenomy), the market infrastructure to process the data (Euroclear), and access to investors who will use the data (MFEXbyEuroclear).  

We can already see that the path to sustainability will be challenging. The sheer amount of data that needs to be captured is daunting, and ensuring this data is consistent and standardised makes it doubly so. And yet the end goal dictates that we must do this to ensure that capital is allocated to sustainable activities. This will only happen if all market participants can come together in the same spirit of collaboration. 

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ESG and building an ecosystem of sustainability: video

Regulators are expanding their focus on incorporating sustainability into investment decision making, but lack of consistent and robust data remains one of the biggest challenges facing asset managers.

Watch MFEXbyEuroclear addressing this issue