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Industry roundup: 3 November

BNP Paribas research report looks at ESG integration within the hedge fund industry

The integration of ESG factors into the investment process continues to accelerate rapidly, according to a research report published by BNP Paribas. While traditional investor segments of the industry have made strides in the adoption of ESG factors into their investment frameworks, the study assesses how hedge funds are responding to the shift across their diverse spectrum of investment strategies. 

The survey - which included 53 hedge funds with a combined AUM of over US$0.5 trillion - found that 40% currently include ESG considerations in their investment process, while 60% do not. Interestingly, the survey found that the imbalance is not simply a matter of hedge funds being unconvinced about the business case of integrating ESG for a sustainable future, but that there are key barriers that have delayed integration. For example, 67% of respondents cited social factors as the most difficult to analyse and incorporate. There was also an 'action gap' between the familiarity of sustainable products and uptake.

In spite of this, a key finding of the report is that hedge funds are approaching the tipping point of ESG integration. While the majority of funds surveyed do not currently integrate ESG, most of those who do only started integrating ESG since 2018. On this trajectory, by mid-2022 the majority of hedge funds will be integrating ESG approaches - likely sooner. 

The report also examines the key drivers behind current integration, such as client demand and a belief that ESG positively impacts risk-returns. Future drivers will also continue to shape the sector's response to ESG, such as the COVID-19 recovery and an evolving ESG regulatory landscape. 

 

Reserve Bank of Australia brings in partners for wholesale CBDC research project

The Reserve Bank of Australia has announced that it is partnering with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software, a blockchain technology company, on a collaborative project to explore the potential use and implications of a wholesale form of central bank digital currency (CBDC) using distributed ledger technology (DLT). This is part of ongoing research at the Reserve Bank on wholesale CBDC.

The project will involve the development of a proof-of-concept (POC) for the issuance of a tokenised form of CBDC that can be used by wholesale market participants for the funding, settlement and repayment of a tokenised syndicated loan on an Ethereum-based DLT platform. The POC will be used to explore the implications of ‘atomic’ delivery-versus-payment settlement on a DLT platform as well as other potential programmability and automation features of tokenised CBDC and financial assets.

"With this project, we are aiming to explore the implications of a CBDC for efficiency, risk management and innovation in wholesale financial market transactions," said Michele Bullock, assistant governor (Financial System) at the Reserve Bank of Australia. "While the case for the use of a CBDC in these markets remains an open question, we are pleased to be collaborating with industry partners to explore if there is a future role for a wholesale CBDC in the Australian payments system."

The project is expected to be completed around the end of 2020 and the parties intend to publish a report on the project and its main findings during the first half of 2021.

 

Nacha adds Nivelo to Phixius early adopter programme

Nacha has welcomed digital payment security company Nivelo to its growing list of partners - including Visa - who have signed up as an early adopter of Phixius, a payment-information exchange platform that is designed to help organisations more securely share and manage electronic payments information. 

Phixius aims to improve interoperability, standardisation and automation while reducing fraud. The platform does this through a network of credentialed financial institutions and payment service providers known as credentialed service providers (CSPs), standardised open APIs, streamlined authorisation and audit capabilities, and secured information exchange channels.

“We welcome Nivelo as an early adopter," said George Throckmorton, Nacha managing director and executive director of Afinis API Standards. "They share Nacha’s commitment to creating solutions that improve the digital payment experience for businesses. We are excited Nivelo will begin to leverage Phixius to enable important data services for businesses paying employees.”

“Nivelo is on a mission to add needed risk infrastructure in the digital payment space and launched its real-time risk scoring API to protect payments from fraud," said Eli Polanco, founder and CEO of Nivelo. "Partnering with Phixius will add new layers of risk visibility into the fraud detection algorithms that power our API service.”

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