Sustainable investment management

Committed to sustainability information

For some years now, all companies within the scope of the NFRD (Non-Financial Reporting Directive) have been obliged to report sustainability information on their operating business. This obligation has been concretized within the framework of the so-called EU Taxonomy Regulation as of the beginning of 2022: It is now mandatory for companies to assess all economic activities in the past fiscal year with regard to their EU taxonomy eligibility, i.e. with regard to their allocation to the taxonomy criteria (regardless of whether these are met).

Increasingly complex

But this is only the beginning. As early as 2024, not only taxonomy capability but also compliance must be reported. It must then be shown that the operating business also meets the assigned criteria in the 2023 financial year. In 2025, the NFRD will also be replaced by the CSRD (Corporate Sustainability Reporting Directive), which will almost quintuple the number of companies affected.

But what does all this have to do with finance and the corresponding SAP modules? A great deal, because the operating business of companies also includes activities in the financial area. In particular, for the investments held for insurance portfolios, for example, but also for employees' pension entitlements, the above-mentioned information must also be published.

In detail, this means that it must already be proven whether the investments held are taxonomy-capable, i.e. whether the investments can be assigned to a target of the taxonomy. As a rule, this can still be achieved with a rather general analysis based on existing reports. However, the taxonomy compliance report required in 2024 already requires the collection of additional (master) data, for example on the issuers of the bonds held, the business partners or the properties financed via loans. Specialized providers now even make some of this data available in a standardized form.

This master data must not only be collected, but also processed as part of the investment management process - and it makes sense to do this in the SAP modules TRM, CML and CMS already used for this purpose.

Not overnight

First of all, the additional data must be stored at the corresponding system objects; these are primarily the business partner or issuer, the class in the case of a security, and the collateral managed in SAP CML or CMS for an issued loan. This should make it possible to meet the requirements for most asset classes; however, there is currently no solution in the SAP standard for either storing or importing the data, so enhancements are necessary here.

The next step is to transfer the data stored in this way into the report format. SAP provides the PaPM (Profitability and Performance Management) module with corresponding content for this purpose. If this is already part of the SAP system landscape and it is operated under S/4 Hana, the integration is simple; if these prerequisites are not met, it must be weighed up whether a customer-specific extension of the inventory-managing systems TRM and CML is the more efficient implementation solution.

Long story short: Even this very brief outline shows that sustainability reporting can lead to considerable system changes. Since these can hardly be implemented overnight, it makes a lot of sense from our point of view to deal with this topic now at the latest.