Your risk manager may need help

In August 2022 it became mandatory for IFMs (ManCos and AIFMs) to integrate Sustainability Risk in their risk management. The modified level 2 directives and regulations concerning UCITS and AIFs specified this new responsibility which is aligned with SFDR and the EU Taxonomy, even if a financial product is not liable to report under articles 8 and 9. ESMA has made this point abundantly clear in their Supervisory Briefing of 31 May 2022, section 4, article 49-55.

It appears that approximately half of the funds in Luxembourg have no intention of adopting an investment strategy making them liable to report under Article 8 or 9 of the SFDR. Many suppliers believe this choice also exempts them from integrating sustainability risks in their risk management.

This is wishful thinking. Given that the central Level 2 documents clearly states the general requirement to integrate sustainability risk management, the only cases where sustainability risks need not be reported are those where such risks after a considered analysis are determined to be irrelevant, i.e. will only impact a company in a week of two Thursdays.

Implementing sustainability risk management is rather different between UCITS and AIF’s. One very practical reason is that many listed companies already report on the interaction between the company and the outside world concerning the ESG factors. There is an increasing number of data providers who offer their help.

But for the average Private Equity Fund or Real Estate fund, simply identifying and classifying the sustainability risks may be a challenge.

Origo Consulting is ready to help your company get up to speed.

• In the case of a UCITS, we can help you reformulate your risk management framework to include sustainability risks, identifying and mitigating the risks and finding reliable providers of data solutions.
• For AIF’s, the approach is rather more individual, based on the concrete investments the fund has already made. We help you formulate the risk management framework, to identify risks in existing investments and to bring you up to speed in the ongoing monitoring.
• For a Private Equity fund, the investee companies may have to create new reporting on sustainability issues, and your own risk management function will have to analyse and summarise the information received from investee companies.
• For a Real Estate fund, key risks might include environmental concerns (e.g., energy usage, waste management, water consumption), social aspects (e.g., tenant wellbeing, community relations), and governance (e.g., property management practices).

At Origo we have extensive experience in portfolio management, risk management and compliance as well as in board governance. Contact Katia Ciesielska, Carsten SALEWSKI, Frank Dan Jensen or Kim Asger Olsen to hear how Origo Consulting can help you.