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Sustainable Finance and

New Regulation

Using data to gain an edge

Across the finance landscape, there's growing recognition from companies and governments that assessing Environmental, Social and Governance (ESG) factors are a critical part of any investment opportunity. Yet a patchwork of voluntary standards has often made meaningful comparison between ESG factors difficult - underscoring the need for consistent and reliable data.

Now, Europe continues to lead the way on driving investment in sustainability related objectives, with a suite of regulation that requires companies to quantify ESG risks and standardize their measurement.

This July, EU Taxonomy Regulation was adopted by the European Parliament. This framework helps companies identify which economic activities and investments can qualify as "environmentally sustainable".

The Taxonomy Regulation follows the publication of the Sustainable Finance Disclosure Regulation (SFDR) late last year. Both these measures aim to direct capital to genuinely sustainable investments, which help to meet Paris Agreement climate targets. The new rules apply to a wide range of financial market participants and financial advisors including subsidiaries based outside of the EEA regulatory jurisdiction, and set out requirements relating to the products they distribute. SFDR requirements also cover areas such as remuneration, where companies must disclose how related policies are consistent with the integration of sustainability risks.

Collectively, these standards are expected to influence the flow of capital, the assessments finance professionals make, and similar regulation around the world. Meanwhile, over $US20 trillion of asset growth is projected to occur in ESG funds over the next two decades - equivalent to the S&P 500's capitalization today, according to Bank of America.

To help market participants understand ESG factors and meet regulatory requirements, IDS continues to monitor regulations as they evolve and develop products and services. For example, our ESG data sets provide detailed ESG attributes so firms can have granular information to apply to their ESG risk methodology. Clients can also use these to identify specific fields to incorporate into ESG disclosures.

IDS's ESG data focuses on financially material attributes, and is sourced from company and publicly available third-party sources. Developed with Bank of America Global Research, the product leverages decades of IDS's expertise in data collection and processing. As regulations evolve and market gyrations continue, IDS's breadth of data, expertise and technology can help clients gain insight and competitive edge.

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