Is your team struggling to keep pace with the increasing demands of Sustainable Finance Disclosure Regulation (SFDR) data collection and reporting? As organisations strive towards SFDR compliance, asset managers find themselves in a delicate balancing act – striving to amass and report accurate and sufficient data – without burdening their portfolio companies. This predicament can be achieved efficiently by leveraging the capabilities of technology – providing simplicity and offering added advantages.  

In this article, we explore the challenges our clients face and the innovative approaches Holland Mountain has assisted in implementing to navigate them. This involves automating manual processes – subsequently streamlining the SFDR reporting process and establishing a single, reliable source of truth for data accuracy and transparency.  


An Outdated Model – Manual Data Collection  

Managers traditionally rely on manual data collection, typically involving online questionnaire tools or Excel templates – distributed via email. This inefficient process often involves tedious email exchanges, reliance on manual reminders for submission deadlines, and a lack of real-time collaboration. It becomes overwhelmingly difficult to manage when handling sub-entities or GPs / LPs with an LP interest (e.g., Fund of Fund) that require multilevel data collection and validation. The manual process not only inhibits data flow and informed decision-making but also imposes a significant opportunity cost as firms invest time that could have been better utilised on more value-add activities.


Navigating the Shift – Adapt or Adopt? 


ESG software vendors maps by holland mountain and pe stack

ESG Software and Data Landscape by Holland Mountain and PE Stack. For more info on this map, read PE Stack’s ESG research.


Firms have the opportunity to digitalise their ESG processes by either modifying existing software or introducing new systems, where they choose between adapting their Portfolio Monitoring (PM) tool or adopting a dedicated ESG platform.  

There are those who extend the use case of their PM tool from purely financial data to include ESG data collection, utilising pre-determined Excel templates or web-collection forms. Conversely, dedicated ESG platforms typically offer ready-to-use SFDR Principal Adverse Impact (PAI) questionnaires or metrics built within the system, alongside numerous other collection processes aligned to various regulatory and reporting frameworks.  


Collaborated collection workflow 

Irrespective of the approach, both ensure robust, automated, and collaborative data collection workflows, with flags for potential risk areas where pre-set thresholds were breached – highlighting them for a targeted review. This function is achieved either through conditional formatting embedded in the Excel collection template or through the inherent or configured features of an ESG platform. In either case, users can make direct edit(s) following validation, to safeguard data accuracy and integrity. By streamlining data gathering, they eliminate inefficiencies, reduce the risk of human error, and free up time for teams to focus on strategic activities – a significant improvement from manual processes.  


Multiple level data consolidation 

SFDR also requires the precise consolidation of investment-level data to the fund level. This task can be complex and error-prone when executed manually. Issues such as data aggregation, version control, and data accuracy assurance often complicate the process. PM tools and ESG platforms can alleviate these issues by consolidating investment data automatically using pre-set conditions – serving as a single source of truth. Additionally, firms stand to benefit from system functionalities that automate complex calculations for certain metrics. This would not only streamline data consolidation across various entities but also minimises human error and reduces manual reconciliation efforts, contributing significantly to the SFDR’s transparency and disclosure requirements.


Real-time visualisation and analysis 

In addition to managing current SFDR requirements, firms need to anticipate and prepare for future developments. Upcoming SFDR reporting cycles will demand proper storage and maintenance of historical data sources for year-over-year (Y-o-Y) analysis. Attempting a manual compilation of these data sources would be inefficient and potentially compromise data quality. Fortunately, both PM and ESG systems come equipped with embedded reporting and dashboard functionality to consolidate historical data and automatically illustrate Y-o-Y analysis between investee companies. This real-time visualisation of trend movement helps users perform trend analysis, identify ESG risks, and uncover value creation opportunities – thereby converting raw data into actionable insights. Some ESG software vendors offer assistance in creating a pre-determined reporting template, such as Annex I, that feeds data directly from the system and can be refreshed regularly, thereby eliminating the need for manual effort. 


Adapt or adopt considerations 

It is crucial to distinguish between PM and ESG tools. PM tools are primarily designed to handle financial or investment data. They may not be fully equipped to capture the nuanced metrics required by SFDR’s PAIs, such as waste management statistics or specific social and employee matters. This inherent limitation highlights the potential advantage of investing in dedicated ESG-focused systems that are specially designed to handle the complexities and subtleties of ESG requirements. With the right technology in place, firms can be assured that sophisticated ESG requirements, as mandated by the SFDR, are effectively managed and leveraged for long-term sustainability and success. Demonstrating adaptability, the standalone ESG tools are better equipped to keep pace with the evolving SFDR framework, as well as the wider ESG regulatory landscape. Moreover, the data collected can be used for other investor reporting, investment reporting and fundraising purposes beyond SFDR reporting to minimise duplication of effort.  


Professional Integration


optimise your esg process with holland mountain

Get in touch to find out how Holland Mountain can help you optimise your ESG process.

The transformative capacity of ESG technology hinges on its successful professional integration within a firm’s operations. At Holland Mountain, we recognise that the true potential of technology is unlocked not merely by availability, but by full utilisation, through seamless integration into existing workflows and strategic alignment with other platforms. Through this integration, ESG technology can unlock the inherent value within raw data, converting it into actionable insights and engagements with investment companies that steer informed decision-making. This empowers firms to anticipate potential risks, seize growth opportunities, and plot a course for sustainable progression with increased precision and confidence.

Overall, when effectively leveraged, these tools serve as a reliable ‘single source of truth’ – providing data consistency and accuracy that is vital for SFDR compliance and long-term economic benefits.  

As we navigate an evolving regulatory landscape, Holland Mountain is committed to helping its clients optimise their use of ESG processes and operating model, from process design through to technology selection and implementation.