Exploratory study into management of sustainability risks by management companies of Dutch collective investment companies

The Dutch Authority for the Financial Markets (AFM) conducted an exploratory study on how management companies of Dutch collective investment companies handle sustainability risks.
The study was prompted by changes to the Undertaking for Collective Investment in Transferable Securities (UCITS) Directive and the delegated Alternative Investment Fund Managers Directive (AIFMD), which apply from 1 August 2022.
It took place in two phases and focused on identifying, assessing, minimizing, and monitoring sustainability risks. Here are the key observations and insights from the study:
Observations:
– Data Quality and Availability: There are significant disparities in the availability and quality of data related to sustainability risks among management companies
– Clarity on Objectives vs. Risks: It is not always clear to all parties involved what differentiates sustainability objectives from sustainability risks
– Integration of Sustainability: Most management companies have to some extent integrated processes for identifying sustainability risks
Insights:
– Responsibility Organization: Different management companies have varying approaches to organizing ultimate responsibility for managing sustainability risks
– Definition Adherence: The majority of management companies align with the definition of sustainability risk outlined in the Sustainable Financial Disclosure Regulation (SFDR)
– Risk Appetite: Slightly more than half of the management companies have established a Risk Appetite specifically for sustainability risks
– Limited Stress Testing: Stress testing and scenario analyses are not commonly utilized in the management of sustainability risks at present
– Monitoring Limits: Sustainability limits are monitored, and there are few instances where these limits have been exceeded
Possible Follow-up Study: The AFM plans to continue examining how management companies handle sustainability risks, including how they manage risks related to external data providers. They will also conduct further studies at the European level on sustainability risk management by management companies of collective investment companies.