Omnibus Initiative: How asset managers can shape ESG reporting
The EU's Omnibus Initiative simplifies sustainability-related reporting requirements and eases the burden on companies. However, this creates a problem for asset managers: Where will they obtain reliable ESG data in the future – especially for medium-sized and MDAX-listed companies that are exempt from reporting requirements? But the data gap also presents opportunities – for differentiation in the market and for playing an active role in the energy transition in the economy.
Less bureaucracy, more competition – that's the simple logic behind the Omnibus Initiative, presented by the European Commission in February of this year . On the one hand, this initiative was driven by political pressure from EU heads of state and government. In the Budapest Declaration, they called for a reduction in reporting requirements by around 25 percent.
On the other hand, there were strong voices from the business community calling for a change of course. For the financial industry, the changes to CSRD and CSDDD reporting, as well as the EU taxonomy, now represent a paradigm shift. Asset managers, in particular, are under pressure to act in light of the huge data gap expected in the future. 80 to 85 percent fewer companies will soon be required to provide sustainability reporting.
Asset managers are therefore required to find alternative ways of acquiring data. At the same time, they will have to develop new standards and criteria to assess a company's sustainability. Both are undoubtedly challenges. However, the implementation of the Omnibus Initiative also presents opportunities for asset managers: It creates new freedom in assessing the sustainability of companies. This, in turn, offers the opportunity to distinguish themselves and stand out positively in the market. Above all, they can seize the opportunity and gain even more influence in the ecological transformation of the economy.
Creative solutions for data acquisitionBut where does the data come from if not from the companies themselves? Asset managers are required to seek creative solutions to address this problem. This means, for one thing, that they must tap into new data sources. There are already several providers and software solutions on the market that aggregate, analyze, and prepare ESG data from various sources.
Many of these tools offer AI-powered analytics, automated data integration, and interfaces to external databases to supplement missing company data. Another option sounds banal, but it isn't: direct dialogue with companies. This has been a common method in the past to learn more about a company's status quo and objectives. However, this information channel will become enormously more relevant in the future.
More time for transformationOmnibus brings relief and relief to financial market players, while sustainability is slipping down the corporate agenda. That's one perspective on Omnibus and the potential consequences of the initiative. Another perspective: It gives us more time. It gives us as a society a realistic chance to tackle the necessary economic transformation under the right conditions. Because it creates new freedom for investment decisions.
Asset managers need to align their portfolios less strictly with a company's ESG impact and can instead place greater emphasis on financial aspects. This may sound paradoxical at first, but this allows them to generate high short-term returns that can be reinvested in the long-term sustainability project. Because it's also clear: the transformation of the economy cannot be shaped by tax policy. It is the financial sector that steers the change and provides impetus.
In addition, asset managers now have greater control over defining what is sustainable and what isn't. For example, as an asset manager, I manage a fund product with an investment strategy of reducing CO2 emissions in the portfolio year after year. This fund includes around 100 companies operating in a wide variety of industries—car manufacturing, cement production, and steel. Large companies will continue to provide the necessary data in the future. Medium-sized companies will fall outside the scope of the grid in the future. This applies not only to mid-caps, but also to MDAX companies.
So, if the asset manager is faced with the choice of investing in Company X or Company Y in the future, Company X will be able to provide the necessary data points. This makes it easy to derive a relatively clear set of KPIs – for the gender pay gap, for CO2, or for water pollution. However, for Company Y, which is not subject to reporting and will no longer collect and aggregate ESG data in the future, the asset manager will have to come up with something.
And this is where the opportunity for differentiation and market differentiation arises: Asset managers can measure data innovatively and derive qualitative data. They can specialize in one area. But above all, they can place greater emphasis on the transformation potential in their investments. What does this mean? Companies that currently have a negative carbon footprint compared to their industry peers, for example, can still be classified as sustainable. The condition: They compensate for this flaw in other ways, for example, investing in promising future technologies such as wind farms.
Who works with the best data providers? Who has the best methods for differentiated assessment? Who can distinguish themselves as a specialist? Asset managers who address the data gap constructively and purposefully gain a clear competitive advantage. Above all, they can play an even more active role in shaping the ecological transformation of the economy. If there's one positive to be gained from the Omnibus Initiative, it's this: Investment managers have much more power to define what they consider sustainable and what isn't.
This point should not be misunderstood. Success and failure continue to depend on whether investment decisions are transparent and understandable for third parties. Since clear KPIs are often missing, the risk of being suspected of greenwashing is high. A company's sustainability must be verifiable, and asset managers will have to take care of this verifiability themselves in the future. Those who succeed in doing this can hope for a reputational boost and establish themselves as a reliable partner for the transformation.
With Omnibus, asset managers are facing a major transformation that will certainly not run smoothly. However, an optimistic outlook on the future will undoubtedly help them recognize the opportunities within this transformation and possibly even open up new business areas. Given the continued sluggish German economy and geopolitical uncertainty, the ESG project is experiencing a setback.
But this will only be temporary. And asset managers can help ensure that the fundamental principles of sustainable business are not lost sight of even during this transitional phase. What's more, they can take advantage of the increased freedom Omnibus provides and play an active role in the ecological transformation of the economy. Not such a bad prospect, is it?
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