The Connector Podcast - DFS 2022 - Sopiad

Join the conversation with Pierre Nemeth from Sopiad. He talks about the importance of ESG and Sustainability for banks and within the FinTech and WealthTech industry during the Digital Finance Summit 2022 in Brussels, organised and sponsored by Fintech Belgium. 

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Koen Vanderhoydonk
koen.vanderhoydonk@jointheconnector.com

#FinTech #RegTech #Scaleup #WealthTech

Transcript

Introduction  0:01  
Welcome to the connector podcast, an ongoing conversation connecting fintechs banks and regulators worldwide. Join CEO and founder toe and Vander Heiden as you learn more about the latest available trends and solutions in the markets. This episode is proudly sponsored by

Sponsor  0:23  
FinTech, Belgium, the digital finance Association by and for fintechs. Live from the digital finance summit 2020 to

Koen Vanderhoydonk  0:33  
warm welcome to everyone. And yet we are here with another interview at DFS are the best FinTech festival in Belgium. Welcome to the stage Aishe. Hello, can you introduce yourself a little bit? Where are you? What do you do?

Pierre Nemeth  0:50  
So, my name is Pierre Nemeth. I am the CEO and the co founder of SOPIAD, which is a FinTech company located in the area.

Koen Vanderhoydonk  0:59  
And I heard you're a rising star in FinTech and WealthTech.

Pierre Nemeth  1:03  
Yeah, true. True, we are really focusing on was is wealth management activities, we provide personalized diagnostics solution to the wealth management sector, from familiar face until retail banking, private banking, and so on. And the added value goes to the retail investor, also non professional investor who try to have an added value for them.

Koen Vanderhoydonk  1:25  
And this talk will be more about sustainability is gee, maybe not for everyone, what would be the obvious link between ESG and investments?

Pierre Nemeth  1:36  
For me, the link between ESG and investment is clearly the fact that now the retail investor or the non professional investor, really focus to have ESG and sustainable investment. It's part of their mindset. So it's a market requirements. And on top of that, you've got me feed me feed requirement, which is a regulatory requirement that come came into force last August. So both together market requirements and regulatory requirements, link the ESG with the investment. And can

Koen Vanderhoydonk  2:10  
you elaborate maybe a little bit more about? Well, you call me feed, but maybe not everyone in the audience knows what me feed stands for? So what what does it do? And what has changed and as of August this year,

Pierre Nemeth  2:22  
so market is MiFID is the market in financial instruments, directives. So it's a regulatory framework from the European Union. The goal is really to protect, I would say, the investors, that's one part and also to control the market, the financial markets,

Koen Vanderhoydonk  2:43  
and what has been changed because this, this is something that goes around for quite a while for the insiders, you get me feed one, maybe two. And now there's ESG myth it what does that mean?

Pierre Nemeth  2:55  
Yeah. So just to come back on if it one and two, the goal was really to focus on the risk suitability, the risk assessment, meaning that you will take into consideration the risk profile of an investor and you will see, oh, product on the market as suitable compared to the risk profile of the investor on Miffy to ESG. You can wait. So we keep Miffy to but we add the ESG preferences of the investor on top of his or her risk profile. So a more precise profile at the end, I would say the same profile, but ESG preference is on top of that. So more combinations of ESG segments, I would say. Yeah. So more personalization, more personalization.

Koen Vanderhoydonk  3:40  
Does that mean the big impact for the banks?

Pierre Nemeth  3:45  
I would say that in terms of current regular regulatory environment, it doesn't change, but adding ESG feed, you come with another one on the suitability side, because you need now to assess, oh, a product is suitable, really, with regard to ESG if you compare the investor preferences ESG investor preferences with the ESG product information.

Koen Vanderhoydonk  4:16  
And, yeah, I do see that that's a big impact for banks, because because of me feeds, the world, in my opinion, start to be about profiling. And a lot of the systems, the portfolio management systems and so on. They were driving on the fact that they could work with profiles. But now what you say is that suddenly a client has as its own decision, and can make multiple combinations. And that's the personalization part. So I think it's a big chunk for the banks, too big, big change for the industry also.

Pierre Nemeth  4:50  
Yeah, I'm completely completely aligned. completely aligned. I think that we spoke more in the past about profiling meaning now In a static burden, more than static burden than really personalization with ESG preferences that need to be taken into consideration, you can have mult undreds of different combination of, say profile, it's not perfect, but ESG preferences. Of course, based on that you are able to really speak here about personalization and and not just profile categorization, his profile categorization, you can really, you need the banks and financial institution need really to propose a product or and services that are not aligned with specific ESG preferences of your investor,

Koen Vanderhoydonk  5:37  
and also falls within the profile because it's not that one game that the other disappears, right. So it's a combination of both. Exactly. And what I also find interesting is that a lot of banks to which I've been talking to were under the impression this was something that was put in place by financial regulators, but in fact, it's not. It's part of the European Green Deal, that trend towards net zero. And this is a consequence. So as for example, SFDR, I'm sure you're familiar with that as well. Could you maybe explain a little bit about SFDR? What does it do? What does the categorization mean? And what's the impact of that?

Pierre Nemeth  6:17  
Yeah. So we get regarding SF there, we could say that the the level of sustainable investment, we check, we analyze, actually the level of sustainable investment. So the categorization Article Six, until Article, Article Nine, provide you an overview about this level of sustainable investment article series six, concern firms that are not eligible to sustainable investment, or you do not need to take that into consideration into your investment process, I would say. And if you look at the Article Nine, it's the opposite. You need to define a clear, sustainable objective, and you need to use a benchmark or index to you to try to follow up these objectives. So it's really the opposite in this case.

Koen Vanderhoydonk  7:05  
Yeah. And what you see as a trend, there has been some occasions in the market where some companies had police reinforcements because of sustainability issues. And that predominantly has to do sometimes with with the labeling part. So what you see is there is an avoidance for greenwashing. But I was reading one of the papers of asthma just not so long ago. Well, actually, the latest guidelines that came out last week, and it talks about green bleaching. Have you heard about Blue Green bleaching?

Pierre Nemeth  7:39  
I heard about that thing that you refer to asset manager that invest time in funds that have a clear level of sustainable investment, but do not want to disclaim this sustainability impact? Because of the regulate, what's the data issue behind the regulatory requirements? So for me, yeah, that's, I would say, it's really weird, because in one side, you want to disclaim that your friend will promote sustainable investment. But on the other hand, there are certain manager that do not want to disclaim that. So yeah, it's a bit a bit difficult to understand, I would say.

Koen Vanderhoydonk  8:31  
But it's the difficulty not also related to data in general, like not being not having the availability of ESG data already in the market.

Pierre Nemeth  8:41  
Of course, there are still open gray zone, I would say and issues related to the homogeneity of the data or the transparency of the data and you could see the different data providers, we propose maybe different kinds of methodology and at the end data transform data for instance, but I think that the current regulation and the forthcoming regulation are doing a great job and to to avoid this kind of greenwashing and heterogeneity of that at the end. So, working on that, I think that we are on the right direction, I would just have to add something, I think that this classification Article Six, Article Nine is good in terms of portfolio and if you look at the asset manager side, if you look at what the market and I would say the retail investor would take into consideration, they are more concerned about the level of sustainability the I would say the the sustainable alignment or contribution that effect could have without defining that or classifying that into Article Six, nine of eight, they want to say for instance, this one is component of at least 20 or 30% of alignment SFDR alignment and compare to there. A level of preferences, minimum level of preferences, you can, you could do a great job they really assessing the suitability between their minimum preferences and the contribution of defense. And the choice of the client and the choice of the client. Of course, if they want to invest in specific teams principle taking take into consideration principal adverse impacts with specific principal adverse impact. And at the end, we come back to this personalization level,

Koen Vanderhoydonk  10:26  
would it be a wrong question to ask you to explain the principal adverse impact?

Pierre Nemeth  10:32  
Honestly, I say do not in front of me. So this question would be a bit difficult, but it's really assessing the impact that an investment could have on the sustainability side, the negative impact that the investment could have on the sustainability side. So, for instance, if a company has more gas emissions than the much more gas emission than the benchmark, for instance, then an impact could be detected and retrieved to the reporting to the reporting that is if there is required training. So

Koen Vanderhoydonk  11:11  
yeah, and then at the same time, it could also be an objective to lower this impact and therefore have a positive impact on a principle at first impact. Exactly. What, by asking this question, and I know it's a tricky one, because it's not easy. I mean, the whole sustainability discussion, especially you with soap, yet you focused on end customers. But don't you think it's a difficult story for clients or and customers to understand,

Pierre Nemeth  11:39  
of course, of course, it's a difficult story. And I am convinced that if we if we could speak here about improvements in the future in terms of directive or initiative coming from Europe, or the national authorities, it could be to improve the ESG literacy, the non financial literacy, that's the first thing to get access to information session or training, ESD training, because they need to understand and they need to understand in the same way, the definition of sustainable investment, if you look, if you ask you two different persons, maybe you will have two different answers. So for the moment, it's still an open point. So it's a gray zone, you're guaranteeing the definition. So we really need to lean to the definition and really the the understanding for the return investors.

Koen Vanderhoydonk  12:32  
And at the end, that's the the importance is for all of us, because of course should not forget we were moving towards net zero, which is to protect our planet.

Pierre Nemeth  12:40  
Exactly. And so there I think that why the directee does have their Miffy to taxonomy, are really contribute to this, this objective. And but again, there are still improvements that could be done in the future regarding the gray zone and the clarification that needs to be brought two financial market participants regarding these directors

Koen Vanderhoydonk  13:03  
fully agree. So what do you expect that will happen in the future if we think about ESG and investments.

Pierre Nemeth  13:10  
But I think that if we look at, again, this netzero gas emission, we need to really focus on on technologies and companies that accelerate these objectives. That's the, for me, that's the main goal. And to do that, we clearly need to give the more transparent view to the retail investor so that they can invest more easily and leverage an investment to speed up this process and and participate then to be involved in the this objective from from Paris.

Koen Vanderhoydonk  13:44  
Well, maybe taking you back to soap yet. You're a young company, you're starting company, you're a Belgian company. What does your future look like? If you look at six months to one year heads? What would success look like?

Pierre Nemeth  13:59  
But I think that we need to continue to really focus on education ESG education regarding what we are doing and really assessing correctly. Again, the product or the portfolio in one hand and the investor expectation in the other hand, and expect that in an easy way. And I say easy way, because for the moment. It's more simple. It's simpler to to, I would say to assess with simple driver. Then going into the detail of the different teams ESG teams and so on It will come in the future but it needs to be step by step.

Koen Vanderhoydonk  14:41  
I think that's a it's a nice journey that lies in front of you. I obviously wish you all the best of luck with that.

Pierre Nemeth  14:47  
Thank you very much.

Koen Vanderhoydonk  14:48  
I would like to thank you so much for this contribution into this podcast. You're welcome. That was a pretty big one last question. If If participants to this podcast would like to hear more about Soviet where do they go?

Pierre Nemeth  15:02  
W W w.subject.com. That was an easy one. That's an easy one. And that's the one. So if you want to go ask a Dino, they can ask a demo on the website as well and understand what we are doing the service we are proposing to the market.

Koen Vanderhoydonk  15:16  
Perfect. So thank you very much again.

Pierre Nemeth  15:19  
Thank you. So,

Koen Vanderhoydonk  15:20  
thank you. Also, thank you to FinTech Belgian for making this podcast happen. Thank you to the audience. And stay tuned because, as you noticed, we are not having just one series. It's a lot of podcasts that are coming. We're trying to bring a lot of insights to the market. So thank you very much for joining and hope to hear soon. Thank you very much.

Outro  15:40  
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