FinDox steps in on climate disclosure reporting for CLOs

Michelle D’souza

Senior reporter

FinDox has become involved in reporting on carbon data for climate-related financial disclosure regulations, having been mandated by leading CLO managers to source relevant ESG key performance indicators, according to sources.

The UK Financial Conduct Authority’s implementation of climate-related disclosure requirements, under the Task Force on Climate-Related Financial Disclosures (TCFD), came into force on 1 January for UK authorised asset managers with more than £50 billion ($60.91 billion) of assets under management. It will apply to UK asset managers with more than £5 billion AUM from January 2023.

John Goldfinch, partner at Milbank, says the rules may also be indirectly applicable to other UK managers and European or US managers, as some large European CLO investors are requesting such reporting from managers as a pre-condition for future investments.

Goldfinch says TCFD requirements include “disclosure of organisations’ governance around climate-related risks and opportunities; and disclosure on the actual and potential impacts of climate-related risks and opportunities on the firm’s business, strategy and financial planning where information is material”. It also includes disclosure on how organisations identify, assess and manage climate-related risks.

“These rules may be indirectly applicable to European and US managers”

John Goldfinch, Partner | Milbank

The news comes a few weeks after the US Securities & Exchange Commission announced its own inaugural climate risk monitoring proposal.

The FinDox working group was formed a year ago after CLO investor Lupus Alpha used its buying power to insert sustainability impact statements into CLO documentation. A handful of CLO managers cooperated to provide the necessary figures to European investors.

The group originally focused on SFDR reporting, which is standardising ESG data collection. But it has increased its scope to include ESG metrics mapped to all major reporting frameworks, including LSTA, LMA and ELFA fact sheets.

Stamatia Hagenstein, portfolio manager at Lupus Alpha, is delighted by the progress of FinDox. “By November, 34% of our investments had been by managers who participated in the FinDox ESG working group. Half a year later, the coverage is at 90%,” she says.

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July 2022 | Issue 247

Published in London & New York.