FinDatEx, a market association, has the mission to facilitate the data exchange process between financial market stakeholders through the use of standardized files. Indeed, the European and national regulatory framework implies the exchange of numerous information between distributors, intermediaries and producers of financial and insurance products. In order to exchange financial data within the framework of the European MiFID and PRIIPs regulations, FinDatEx has respectively created the EMT (European MiFID Template) and EPT (European PRIIPS Template) files. In this continuity, the organization published in February 2022 a new exchange template, specialized in ESG data: the European ESG Template (EET), in particular to centralize information related to the European Taxonomy and the SFDR regulation.
The EET aims to facilitate the exchange of ESG data between the different market players in order to have an overview of the ESG strategy of financial products. It is not a regulatory obligation but a market standard. This format has been designed so that distributors can automate the retrieval of ESG data and centralize and aggregate the main quantitative indicators. Thus, an erroneous completion or non-production of this model can have a significant impact on the distribution of financial products.
This exchange model is dynamic because it adapts to changes in regulations. Since its launch in February 2022, 3 versions have followed one another with evolutions such as the integration of :
Beyond the new fields of EET, the dates of application and the articulations between the regulations have evolved:
Today, the latest version of this template (V.1.1.1) includes 615 data points related to the ESG characteristics of a financial product. As shown in the non-exhaustive list below, these fields have been chosen to facilitate the retrieval of quantitative and qualitative data in order to comply with French and European ESG regulations and to guide the ESG strategy:
All Article 6, 8 and 9 financial products within the meaning of the SFDR regulation are concerned by the EETs. However, the mandatory fields for Article 6 products are restricted.
Each unit/compartment is the subject of a reporting line. In practice, the consolidation of the EETs produced can be done at different levels depending on the distributor's requests (by fund, by sub-funds making up a SICAV, by subsidiaries, by company, etc.)
The recommended reporting period is quarterly.
This frequency of updating has methodological implications, in particular for calculating the percentage of ownership necessary to calculate certain PAIs (Principal Negative Impacts). The ESAs initially advocated assessing the enterprise value on a fiscal-year-end basis before finally realigning on an approach based on a quarterly estimate in order to avoid methodological bias.
It will also be necessary to produce an EET as well as the pre-contractual documents at each significant change in the life of the financial product in terms of strategy.
Even if the EET is not, in itself, a regulatory obligation, the production of this file is a central element in the distribution strategy of products. Indeed, the visibility of the products can be strongly affected by this document, many distributors require this new format, under penalty of not being proposed to the marketing.
The commercial impact of EETs is major.
This exchange model raises many questions from advisors, producers and distributors of financial products, because in practice this EET file is not easy to complete.
In practice, the majority of management companies fill in the EET with the pre-contractual reporting data. This simplifies the reading of the EET if it is used to select funds, but makes it much more complex, if not impossible, to use for transparency calculations.
In accompanying our clients we have raised several issues:
For producers of financial products
Methodological point - Calculation of PAI (Principal Adverse Impact) in EET:
The main difficulty encountered is that the calculation formulas between EET and SFDR reporting are different. This dichotomy in calculation methodology poses a commercial problem since clients do not want to present divergent figures between two documents (EET and SFDR annexes)
Today, there are several practices on the assets to be taken into account in the denominator that can significantly vary the results:
No clear guidelines have been given by the regulator on this point to date.
On the financial products distributors' side
Fund of funds distributors and insurers, even if they do not directly create investment funds, must determine their ESG strategy and invest accordingly. Until now, if these actors do not disclose the financial products in which they invest, they cannot really verify that their ESG strategy is in line with the financial products in which they invest.
Therefore, EETs, by increasing the transparency of products on the ESG strategies of funds and underlyings, will allow these actors to create a coherent strategy, particularly on the following elements
The EETs will help with regulatory compliance: Article 29 LEC also applies to UCs, the EETs will allow insurers to collect this data. Moreover, the latest communication from the ACPR requires insurance products, considered as ESG, to invest in a certain proportion of products with specific classifications or labels, and this information can be found in the EETs.
The production of EETs represents a strategic element for the marketing of financial products, as well as a significant effort to retrieve data and understand methodologies. We are convinced that this work can be facilitated with automation and industrialization solutions.
The Weefin team has assisted several companies of all sizes in the production of EETs, using the various functionalities of its ESG Connect platform to ensure consistency between regulatory documents (pre-contractual appendix, periodicals, communication on the website).
Do not hesitate to contact us to discuss the most suitable means for your needs.
