Sustainability Considerations

Sustainability is another driver of change within the industry – driven by investor demand and enabled by technological developments, asset servicers will play a significant part in enabling investors and stakeholders to track data, manage standards and inform decisions to create a more sustainable future.

SUSTAINABILITY CONSIDERATIONS

Sustainability is another driver of change within the industry, one that is a clear priority for investors in both retail and wholesale markets, as climate change and the global pandemic have both accelerated a paradigm shift.

In Europe, retail assets now account for more than 30% of sustainable investments, compared with 3.4% in 2013,^xxvi and retail investors are expected to increase their allocation to sustainable investments from 38% of their portfolio in 2019 to 48% by 2024.^xxvii

Meanwhile, 77% of global institutional investors have increased their ESG investments ‘significantly’ or ‘moderately’ because of Covid-19, according to a survey by MSCI^xxviii, with the figure rising to 90% for the largest institutions with over $200 billion in assets under management.

This focus on ESG brings key considerations around both metrics and standardisation, as well as around reporting and governance. 53% of investors globally believe that poor quality/lack of availability of data and analytics in ESG investing is the biggest challenge to the adoption of sustainable investing.^xxix

Improvements in disclosure methodologies is one of the changes to ESG ratings that investors say they most want to see over the next five years.^xxx

Another is a greater focus on materiality – measuring the effect that sustainability issues have not only on companies’ financial performance and long-term value, but also on society and the environment.^xxxi

Investors are also concerned about the ‘alphabet soup’ of rival ESG measurement initiatives taking place. A clear majority want to see the adoption of a standard ESG measurement and methodology. This will be challenging to achieve — by 2018, more than 600 ESG ratings and rankings existed globally, according to consultancy SustainAbility.^xxxii

Once again, therefore, standard setting is a key area of development that needs to be addressed in the development of sustainable operational models, as is the issue of market integrity.

They are both issues that The Taskforce on Scaling Voluntary Carbon Markets — a private sector-led initiative working to scale an effective and efficient voluntary carbon market to meet the goals of the Paris Agreement — is trying to address.^xxxiii

We believe it is unlikely that the carbon credit market will become mainstream until standards are more clearly introduced, even as the issues become increasingly complex.

The cryptocurrency market shrunk by 27% in the week of 19 May, 2021, for example, after Tesla boss Elon Musk raised concern over bitcoin’s negative environmental impact.^xxxiv

As part of their safeguarding and monitoring role, asset servicers will need to ensure that sustainability risks are accurately reported, something we believe will be an increasing consideration as emerging digital asset classes continue to grow.

However, it is worth noting that blockchain technology could play a wider role in the fight against climate change. As the Organisation for Economic Co-operation and Development (OECD) points out, it could help unlock new sources of financing, and mobilise existing industry pledges to carbon reduction through establishing new financing platforms.^xxxv

It could also bring visibility to alignment with sustainability goals by enabling countries and stakeholders to track data and information on infrastructure projects, and it could enhance awareness and access by acting as a transaction-enabling infrastructure of new market models.^xxxvi

We believe that, by 2030, asset servicers will play a large part in helping leverage the power of these technologies to create a more sustainable future.

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