In discretionary management, the client entrusts his or her banker with portfolio management on a day-to-day basis giving the banker a mandate to act on his or her behalf according to a risk profile but also according to predefined terms and conditions. More than ever, investor interest is becoming focused on sustainable themes. “Faced with the pandemic and a wide range environmental and social challenges, some investors want to change direction while others have sought to give more meaning to their portfolio and their assets,” explains Jean-François Genicot, Head of Investments Management at Degroof Petercam Luxembourg.
At the same time, regulations have evolved in a similar manner with the United Nations adopting seventeen goals in 2015 to ensure sustainable development by 2030, and to improve the environment. Four years later, the European Commission put in place the SFDR regulation which will impact the entire financial sector from March 2021. “The aim of this directive is to bring transparency to the investor by communicating information related to environmental, social and governance criteria for each portfolio asset under management. The Commission also wishes to obtain both quantitative and qualitative consensus on these criteria - this is the classification. It is a way of directing financial flows towards more worthy investments in the long term.”
Combining good governance and performance
Within this regulation, one article is of particular importance: Article 8 offers bankers the possibility of certifying their management. A client can obtain a series of information regarding the management and the products promoting environmental and/or social credentials. “This transparency can be seen above all in instruments such as green bonds, where the remuneration depends on environmental criteria that companies must respect.”
In this context, Degroof Petercam has set itself the task of adapting its discretionary management offer to make it more sustainable and compatible with Article 8. “Our clients entrust us with the management of their assets, so we have a social responsibility to handle these investments wisely. There is also a real desire for change among most of our clients, particularly the younger ones, and the Bank wishes to respond to this. Thanks to the tools at our disposal, we have reviewed our portfolios to move towards more sustainable cross-generational investments.”
As a result, certain problematic sectors (tobacco or arms) are excluded from discretionary management. “Thematic investments, in other words the selection of small cap investments likely to grow and become environmental trail blazers, are becoming increasingly popular. And ‘best in class’ means looking for the best-rated companies in each sector or those that make special efforts to respect ESG criteria”.
Focus on investments and their impacts
While financial performance is crucial for investors, non-financial performance is just as important today. “We are seeking to combine and guarantee these two aspects for our younger clients who are aware of climate change and social changes, and want to make a contribution to laying the foundations.”
The Bank now intends to pursue these changes to offer clients a type of management inspired by Article 8, or even Article 9 which implies a series of constraints to be understood by the manager and by the client. “In this context, the aim is not to emphasise ESG criteria but to insist on the impact of investments that would allow us to move towards Article 9, which is less accessible because of the more limited investment universe. However, our teams are working on this, and we believe that we will soon be able to offer both a wide range of funds and a positive impact discretionary management service.”
Find out more in our Imagine Tomorrow section .