The Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) has published the results of a study (in Dutch) on how Dutch alternative investment fund managers (AIFMs) are handling sustainability risk management. Involving 15 AIFMs, the study aimed to understand how the participating organisations have integrated sustainability into their processes. Regulation Tomorrow provided a translated summary.
The study was motivated by changes made to the UCITS directive and the AIFMD Delegated Regulation, which recently came into force. Following the updates, AIFMs are now required to integrate sustainable risks into their processes, and ensure that they have the necessary resources for the effective integration and analysis of sustainability risks. The study identified three general observations and five insights.
• The quality and availability of data varies. This may affect the AIFMs’ ability to compare investment funds.
• AIFMs are not consistently able to differentiate between sustainability objectives and sustainability risks. This could result in failure to identify and address risks.
• The majority of AIFMs have integrated processes to identify sustainability risks.
• Every organisation should establish a function that is assigned responsibility for handling sustainability risks.
• The definition of sustainability risk should be standardised. Most AIFMs currently follow the definition laid out in the Sustainable Finance Disclosure Regulation (SFDR).
• Sustainability risks should be considered when determining risk appetites, and should ideally be tracked with quantitative benchmarks.
• Stress testing should be applied to better understand the implications of sustainable risks on investments.
• It is important for AIFMs to establish sustainability limits, monitor risks through those limits, and report on this periodically.