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SAVE BIG AT TAX TIME WITH THESE INVESTMENT TRICKS

Paying tax is a given but, for those who own or are looking to acquire an investment property, Mark Hay Realty Group Principal Mark Hay said there were a few initiatives in place to help reduce your tax burden and maximize the return on your property.

Negative gearing is your best friend

According to Mr Hay, all costs associated with the leasing out of an investment property are tax deductible.

“This means all operating costs, plus interest, are deducted from the rental income and, on a fully borrowed/geared investment, that figure is usually negative – hence the title of negative gearing,” he said.

“If the income on the rental is $15,000 and the cost, including interest, is $20,000, the $5000 loss will come off as an annual deduction from your taxable income.”

Along with offsetting the operating costs, Mr Hay said you could add the depreciation allowance, which further added to the loss or negative gearing of the property’s income.

“The tax department ruling says a new building can be depreciated for 40 years at 2.5 per cent, however you could also rightfully claim depreciation on older buildings,” he said.

“This is probably the greatest benefit for negative gearing because clearly property doesn’t depreciate, it appreciates.”

Despite its advantages, Mr Hay said negative gearing should never be a reason to purchase property.

“Negative gearing a property should only be the case while you are working,” he said.

“When you retire, you shouldn’t have negative-geared property because it will require you to prop it up with money and, during this period in your life, you should have a positive cash flow on your properties to supplement your retirement income.

“Clearly there will be little to no tax deductions when you retire.”

Maximising depreciation values

Along with claiming the operating costs of managing an investment property, Mr Hay said owners could escalate the rates of depreciation on other assets of the property, including the carpet, any hot water systems and air-conditioners. Items under $1000, such as bedding, could also be depreciated fully in the year the money was spent.

“At least one-third of the country’s investors do not claim depreciation on their investment property and millions of dollars’ worth of tax deductions go down the drain every year,” he said. “By simply engaging a quantity surveyor, a full building report with the appropriate depreciation schedule can be produced at the cost of around $500 as a one-off charge to be referred back to for the lifetime of the property.”

The 12-month tax rule

According to Mr Hay, regardless of whether you are positively, neutrally or negatively gearing your investment property, the 12-month rule legally permits investors to fast-forward their tax deductions for a whole year, with the ability to prepay costs to obtain the deduction in the year it is spent.

“A typical $400,000 investment property that is 100 per cent financed at five per cent will be eligible for a prepayment of 12 months’ interest and outgoings,” he said. “In this instance, $20,000 of interest repayments and $5000 outgoings for shire rates, insurances and more can be prepaid.”

Regardless of whether you have owned the property for a week or some time, Mr Hay said you were able to write off the next 12 months’ costs of $31,500 against your income earned in the current financial year.

“No matter how large your tax bill is, you can legitimately reduce your tax burden and receive tax dollars that would otherwise have been lost forever,” he said.

“Real estate agents, accountants and financial advisors have been advising and assisting clients to legitimately reduce their tax bills for many years using this method.”

 

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thefintech.info

ARE PEOPLE IN FINANCE UNTRUSTWORTHY?

The vast majority of people who work in finance are intelligent, charming, desirable people who enrich society and subscribe to daily opinion newsletters. They help us buy houses, start businesses, sell JPGs of cartoon apes. They make dreams come true.

But let’s be honest: They have a bit of a reputation, perhaps best summed up in the many NSFW replies to this recent tweet by Jordan “Wolf of Wall Street” Belfort:

Belfort is of course a notorious outlier on the reputation spectrum. But “Where are the customers’ Miami estates?” is the sort of question even more highly regarded financiers have been hearing for decades. Some people would think twice about trusting them to babysit, is all I’m saying, especially if that baby is made out of money.

Justin Fox writes of a German experiment that suggests financiers’ reputation for untrustworthiness may not be entirely unearned. In this experiment, a group of people in one room is told the value of every dollar they give to people in a second room will triple. The people in the second room then have the option of giving some of that tripled money back to the people in the first room.

It will perhaps not shock you to learn that people in the second room who worked in finance were significantly less likely to give money back to people in the first room. Some might call this “selfish” or even “smart.”

The authors of a new paper about the experiment called it “untrustworthy.” The idea is that sending money back to the first room benefits the whole of this two-room society, and these people couldn’t be trusted to care about that. This judgment might be unfair when applied to the broad swath of people working in finance in actual human society, which is a lot bigger than two rooms. It still might not be a bad idea to think about the implications. Read the whole thing.

Good Luck Guessing What Putin Does Next

For the past several months, the whole planet has been in thrall to the fevered churnings of Vladimir Putin’s brain. He invaded Ukraine, trashing the global political order and his own economy, just because he felt like it. It didn’t make a lot of sense to those of us with non-Putin brains, but that just means we have to be ready for more ugly surprises.

For example, rather than accept a military loss or stalemate in Ukraine, Putin could very well double down, subjecting his country to more economic punishment and isolation, turning it into what Hal Brands calls “Tehran on the Volga” — a nuclear-armed Iran.

We also have to wrap our own minds around the fact that a cornered Putin is much more likely to use those nukes than we expect, warns Andreas Kluth. That includes having a game plan that doesn’t involve just turning the whole planet into the setting for “The Road.”

While we’re reading minds, we also have to guess what Xi Jinping is thinking. He’s one of the few people on Earth who could pressure Putin to end this madness. But for Xi to turn away from Putin now would be to admit he made a mistake, Clara Ferreira Marques writes. And an autocrat would be out of his mind to do that.

Bonus Nuclear Nightmare Reading: A new deal with Iran isn’t worth taking the Revolutionary Guard off the terrorist list. — Bobby Ghosh 

Don’t Fear the Rate Reaper

Investors took a bit of a pause today to catch their breath after weeks of bludgeoning bonds, although the beatings will likely resume. It all has a very “2007” vibe to John Authers, which is never a thing you want to hear, though there’s no guarantee we have a 2008 in our immediate future.

Rising rates were kinda disastrous back then, kicking over a whole economy propped up by derivatives of subprime mortgages (see “finance trustworthiness” above). The world is much different in 2022, writes Conor Sen. Banks are stronger, and so is the housing market, where the mortgages are healthier, supply is scarce and the children are all above-average. Jared Dillian believes the Fed will have to raise rates until the economy breaks, but it might be sturdier than we realize.

Further Rate Reading: The Fed has ways of keeping the yield curve from inverting. — Marcus Ashworth 

Telltale Charts

Russia’s ruble has rebounded because of a massive hole in the sanctions regime, through which fossil fuels flow in one direction and heaps of cash flow in the other, writes Paul Davies.

Bounce Back

The value of the ruble tumbled when sanctions were imposed but rebounded

Source: Bloomberg

Food-delivery services could fall victim to inflation, write Andrea Felsted and Tae Kim.

Weakening Demand

The twin forces of reopening and inflation have begun to affect food delivery

Source: Morning Consult

Note: Monthly survey of 2,200 adults

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thefintech.info

WHAT TO DO IF YOU LOSE YOUR FINANCIAL AID

Financial aid makes it easier for college students to afford tuition and other educational expenses, but there are some scenarios where you may lose your financial aid. While you can get it back in some circumstances, you may need to consider alternatives in the meantime.

Here’s what to know about financial aid suspension, how losing financial aid can impact you and what steps you can take to get it back.

Reasons why you lose financial aid

There are a handful of situations that can cause you to lose financial aid:

  • Your income or your parents’ income increased: Certain forms of financial aid are dependent on your income and your parents’ income. If that income has increased beyond a set threshold, your financial aid package may be reduced accordingly.
  • You didn’t maintain satisfactory academic progress: One of the many requirements you need to meet to keep your financial aid is to maintain a certain GPA set by your school. If your grades dipped below that or you have an incomplete class or withdrawal, it could cause you to lose access to all financial aid, including federal loans.
  • You’re not enrolled half time: You need to be enrolled at least half time in order to access some forms of federal financial aid. If you’re taking a lighter course load this semester, you may not qualify for federal student loans unless you add more credits to your schedule.
  • You’ve advanced in your program: Some schools offer certain types of financial aid for incoming freshmen, but once you’ve advanced in your program, those school-specific forms of financial aid may no longer be available.
  • You’re incarcerated: If you’re incarcerated in a federal or state institution, you won’t be eligible for most forms of federal financial aid. If you’re incarcerated in an institution that’s not federal- or state-run, however, you may be able to get a Pell Grant.
  • You don’t meet other basic eligibility requirements: The U.S. Department of Education maintains a list of basic eligibility requirements for federal financial aid. It covers things like citizenship, enrollment, student loan default and other criteria. If your school’s financial aid office finds that you’re missing one or more of these requirements, you may lose your financial aid altogether.

Different schools have different programs for their students, but federal financial aid suspension carries from one school to another because it’s coming from the federal government, not the educational institution. If you lose eligibility for aid at one school and then transfer, you won’t automatically regain eligibility.

How to get your financial aid back

Depending on the situation, you may have had your financial aid reduced or removed altogether. Regardless, the process of regaining it will depend on the reason you lost it.

In some instances, such as when your school doesn’t offer certain scholarships to upperclassmen or your parents’ income has increased and likely won’t go back down, you may not be able to get back what you’ve lost.

But in other cases, the steps you need to take are directly related to the reason for suspension. For example, if you’re incarcerated, you’ll need to wait until you’re released. If you’ve defaulted on a federal student loan, you’ll need to get the loan out of default. And if you’re not enrolled at least half time, you’ll need to add more classes to reach that threshold.

If you’ve lost your financial aid because of academic issues, you can appeal the decision with your school’s financial aid office. There may have been extenuating circumstances, such as a death in the family or a long-term illness, that made it difficult for you to meet the university’s requirements, and providing that information could help you overturn the decision.

If you’re unsure about the reason for losing financial aid or how to proceed, reach out to your school’s financial aid office for details and assistance.

How to pay for college without financial aid

There are a handful of ways you can get the funding you need to pay your tuition and other expenses even if you’ve lost your federal financial aid.

Scholarships and grants

Depending on the situation, you may still be able to get scholarships and grants from your school. If not, take some time to search various scholarship search engines and apply for scholarships and grants from private organizations.

These programs are separate from the federal financial aid program, so you don’t have to worry about your financial aid suspension affecting your eligibility.

Student loans

If your income or your parents’ has increased or you’ve simply lost school-specific financial aid, you may still be able to take out federal student loans.

However, if your situation has caused you to lose access to all federal financial aid, you may have to consider private student loans instead. Unlike federal loans, private student loans require a credit check, which means that you may need a parent to co-sign the loan.

If you don’t have a co-signer, you may also consider an income-share agreement, which provides you with the money you need right now in exchange for payments based on a percentage of your income after you graduate.

Part- or full-time work

Depending on your course load and other factors, you may be able to get a part- or even full-time job while you’re in school. Even if you can’t work much during the school year, you could work full-time during the summer to earn some money to pay for at least part of your college expenses.

Consider a more affordable option

Remember, federal financial aid suspension will carry over to another school. But if you transfer to an online school, a community college or a state university, you may be able to reduce your expenses enough to make college more affordable. And if you’ve lost your eligibility due to poor grades, you can use this opportunity to work hard to bring your grades back up.

Before you transfer, though, check to see how many of your credits will transfer from your current school and whether they’ll still count toward your degree. In some cases, one school’s required course may be considered an elective course by another.

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thefintech.info

HOW NEW FINANCIAL OFFERINGS ARE DRIVING FINANCIAL INCLUSION

The financial services (FS) sector has been going through a period of astonishing change, writes Ion Fratiloiu, Head of Commercial at Yobota, with a groundswell of new offerings and ideas arriving at an ever-more impressive pace.

Every week, new companies pop up with bright and innovative visions for the future, with banking-as-a-service (BaaS) providers making it increasingly easy and accessible for anyone to launch their own kind of financial product, unlike anything on the market today.

For those who closely follow financial news, readily investigate the latest entrants to the market and understand the developments within the ecosystem that make this rapid evolution possible, this can only seem like good news.

These products can offer tech-savvy, financially stable individuals new, better-suited services that can improve their financial wellbeing. More options mean greater variety – and greater potential to benefit. This, sadly, does not apply to everyone.

Tackling the problem of sub-prime

Many of us live with limited or no access to banking and financial services, either through a lack of knowledge or due to various barriers to entry. The unbanked, underbanked and financially vulnerable portions of the population might view the fintech revolution as though it were taking place on the far side of a telescope – as if meant for someone else.

For the 12.5 million UK adults with little to no confidence in their ability to manage money, or the one million who don’t have a bank account, the growing popularity of tools like open banking and BaaS might seem irrelevant, but this really couldn’t be further from the truth – these things might be able to change their lives.

Increasing financial inclusion within the UK must be a priority for us as a nation. People who don’t have access to the best banking solutions are less able to improve their own financial health and are more vulnerable to sudden disruptions, like those we have seen emerge from the pandemic.

28% of UK adults (14 million people) experienced a direct negative impact on their income due to the coronavirus pandemic (as of May 2020), which goes to show why increasing financial inclusion is so important – particularly in a country that views itself as a leader within the financial world.

The value that exponential innovation and the proliferation of new fintech players can offer those in need, is that the increased variety and personalisation of these new products and services can lower the barriers to entry and gaps in knowledge that keep so many people unbanked. The responsibility lies with the current and upcoming generations of fintech to integrate the ideal of financial inclusion into their DNA and ensure their products are accessible, inclusive and fairly priced.

The road to financially inclusive fintechs

A common cause of financial exclusion is the problematic practice of standardised credit scoring factors. Judging everyone to the same standards can be unproductive, as many people and groups face outlying factors and atypical circumstances that, if left unchecked, might preclude them from accessing the best financial services available.

Powered by BaaS and open banking, fintechs with bright ideas and the ability to see them through have the power to lower costs, increase speed and accessibility and allow for more tailored propositions that can suit these otherwise excluded groups. The rise of flexible and cloud-native banking infrastructure underpins the ability of businesses like these to quickly spin out products that address the – often overlooked – needs of their end-users.

Making socially responsible decisions

In the case of neo-lenders and creditors, being able to offer an online and upfront decision empowers customers to check their eligibility for products with ease, to pick the best loan for their situation and to receive the funds within minutes. Increased access to products that are right for them is a positive step for many towards increased financial inclusion.

It is not only questions of personal finance that can be affected by exclusion – companies without the necessary operational track record to qualify for a business loan can benefit from fintechs that are set up specifically to deal with clients like them, allowing new businesses to be established that might otherwise have been denied support.

Open banking and improved data sharing is key to these sorts of developments. New services that are built with open finance at their core, can help people with limited knowledge of FS solutions, using their existing financial data to identify potentially beneficial products and suggest methods of improving their credit and financial wellbeing. These datasets are also beneficial to the wider population, as they can inform the creation of new fintechs and products specifically designed to serve different demographics.

Making a mission of inclusion

The direction of evolving financial products and services, as well as the technologies that underpin them, bodes well for the future of financial inclusion in the UK. But for this positive effect to grow and sustain, these fintechs and the partners that support them need to ensure that financial inclusion is a priority from the ground-up.

Knowledge sharing is another priority. Fintechs and those who engage in the surrounding discourse need to use their platform to promote financial literacy and to spread the word about how inclusion can improve financial wellbeing and quality of life. Ensuring everyone has the means and the knowledge to access the best option on the market levels the playing field and benefits everyone.

The latest generation of lenders, payments providers, comparison platforms and all other kinds of FS platforms can contribute to the issue in ways that established financial institutions cannot. Their strength is in their dexterity, being able to create new products that are better targeted at overlooked customer segments, and in doing so, increase both the available options for the systemically underserved, and generate valuable data about the causes and effects of the issue.

Positively, we seem to be going in the right direction. Yobota’s most recent survey revealed that almost two thirds of UK banking and FS firms plan to invest in products that drive financial inclusion in 2022. I hope we see this number increase, and that these firms make good on their promise to prioritise financial inclusion in the coming years. People are safer and better off on the inside – so let’s not keep them out.

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thefintech.info

TOP 8 FINTECH TRENDS HOLD THE FUTURE IN 2022

The year 2021 has come to a close! It’s time to keep an eye on the Fintech trends shaping the financial industry and what promise might fintech hold for the future. With the ongoing epidemic, the problems of digital transformation have dominated 2020 and 2021. Firms’ substantial jumps in switching systems to digital platforms, operating remotely, and developing user-friendly goods and services that kept clients during lockdowns appear to be calming down now.

Fintech companies, in particular, have experienced a surge. This article will highlight eight Fintech trends to look out for in 2022 and beyond.

The rise of Fintech

Fintech’s ongoing growth is also a crucial influence in the changes occurring in the sector. Fintech is a mix of technology and financial services that is transforming the manner financial businesses operate, interact, and transact with their clients, regulators, and other stakeholders.

All types of companies, from startups and tech companies to established firms, are using Fintech. In recent years, many variations of Fintech have emerged that draw on cutting-edge technologies tailored explicitly for particular sectors or functions within the financial services ecosystem, such as regtech, and insurtech.

Fintech Growth Report During COVID-19

Despite the instability and chaos that COVID-19 caused to businesses throughout the world, Fintech around the globe recorded an average growth in Q1 and Q2 2020. (University of Cambridge, 2020).

This rise, however, was not uniform across all areas. And marketplaces, the industry was fast to adjust to the pandemic’s problems by altering or introducing new products and services based on ongoing market circumstances.

However, Fintech continues to face significant headwinds in operations, fundraising, and regulatory challenges worldwide.

For example, before the pandemic, fintech firms were having difficulty raising funds since many investors favored Fintech with a well-established and transparent business strategy (Deloitte, 2020). Fintech must also contend with interest rate reduction and a global economic recession.

On the plus side, analysts believe that the COVID-19 situation will generate new chances for the financial industry.

Fintech Growth Report During COVID-19

Despite the instability and chaos that COVID-19 caused to businesses throughout the world, Fintech around the globe recorded an average growth in Q1 and Q2 2020. (University of Cambridge, 2020).

This rise, however, was not uniform across all areas. And marketplaces, the industry was fast to adjust to the pandemic’s problems by altering or introducing new products and services based on ongoing market circumstances.

However, Fintech continues to face significant headwinds in operations, fundraising, and regulatory challenges worldwide.

For example, before the pandemic, fintech firms were having difficulty raising funds since many investors favored Fintech with a well-established and transparent business strategy (Deloitte, 2020). Fintech must also contend with interest rate reduction and a global economic recession.

On the plus side, analysts believe that the COVID-19 situation will generate new chances for the financial industry.

fintech-growth

For example, the ongoing social distance needs are driving the necessity for digital payments. Digital wallets are exploding, and governments are scrambling to establish national standards.

When the epidemic began, 83% of people used digital wallets, and experts predict the business would be worth more than $10 trillion by 2025. (TelecomTV, 2021).

Furthermore, in 2020, there will be over 779 billion digital transactions globally, which is predicted to climb 13% in the following years, making cash payments the least prevalent payment method by 2022. (Capital On Tap, 2020).

Top 8 Fintech Trends to watch for in 2022

Embrace the future of payment processing and capitalize on its advantage. We’ve compiled a list of 8 technologies changing the industry to help you stay on top of all the latest trends driving the fintech revolution.

Fintech trends no.1: Digital Banking

Banks have come a long way – the concept behind this fintech wonder is to combine the advantages of the globalized economy and cryptocurrencies into an all-in-one banking solution for the consumer market.

Consumers may enjoy the conveniences of peer-to-peer (P2P) transfer, MasterCard with no transaction fees, and the flexibility to make worldwide payments without the need for time-consuming paperwork or long queues at a traditional bank.

According to Global Market Insight in 2019, the fintech evolution of digital banking has reduced physical visits to brick and mortar bank offices by 36%, and the trend is anticipated to continue.

Fintech trends no.2: Blockchain

Fintech and blockchain are a perfect combination; they shine in many areas but are especially effective in supply chain management.

The use of blockchain technology can deliver lightning-fast, low-cost, and dependable payment processing services without sacrificing security.

It will most likely be accepted as an alternative to the expensive and less dependable traditional incarnations that have plagued the financial sector for many years, including revolutionary techniques of fool-proof auditing, record keeping, and accounting.

Fintech trends no.3: Artificial Intelligence (AI) technologies

Since its inception, machine learning has made big promises – from automating millions of basic activities to processing millions of complicated transactions in seconds. AI Fintech has enormous potential in finance.

AI is expected to become a gold standard in day-to-day transactions, enhancing all areas of digital business transactions from security (intelligent fraud detection) to sophisticated investment analysis.

According to financial analysts, AI Fintech will accrue a net value of $8984.9 million in only four years due to prominent firms’ sustained investment in AI-powered finance.

Fintech trends no.4: Payment innovations

fintech-trends

This FinTech sector includes one of the most important aspects of modern-day commercial transactions.

  • Mobile wallets
  • Contactless payments
  • ID verification technology
  • Security-oriented machine learning
  • Fintech AI

According to PaymentJournals, the move to online purchases is predicted to expand in value to more than $2.7 billion in 2022, with the possible chance of increasing the value of global e-commerce to more than $5.4 trillion in 2025.

Fintech trends no.5: Open banking

Banks can use open banking to link third-party APIs to their banking platforms. Customers can share their financial information with third parties in exchange for new services and improvements to current information. Customers, for example, may authorize access to a utility company app to pay bills directly from their bank account rather than having another login and payment method on file.

Other recognized open banking use cases include third-party payment proposals based on transaction data or previous spending habits, customized services such as improved loan offers from banks, and investment advice from wealth managers or Robo-advisors.

Fintech trends no.6: Gamification

fintech-trends

Financial organizations have begun to incorporate gamification into their goods and services. Gamification is a design-based approach that uses game features like personal scorecards or badges to engage users in doing certain activities. These games enable clients to track their spending patterns by using events or progress bars while also delivering positive feedback for making wise financial decisions.

Fintech trends no.7: Cybersecurity

As hackers uncover new security holes in systems, professionals must develop even more inventive solutions to protect critical data. Even with the most stringent data security measures in place, hackers are continually devising new ways to access critical information.

Fintech businesses are integrating cybersecurity technologies, such as blockchain, in ever-innovative ways to provide a more secure manner of storing information. Other notable cybersecurity improvements in the financial sector include multi-cloud data storage, secure access service edge (SASE), and decentralization.

Fintech trends no.8: E-commerce security

While automating a company’s complete set of day-to-day transactions is profitable, adding an AI-powered platform to identify legitimate consumers from fraudulent ones is a vital but typically significantly more challenging addition.

As Fintech solutions become more widely available, the necessity for appropriate risk management becomes more evident, and a few businesses have profited on this need.

Wrapping up: What’s coming ahead?

Fintech strives to simplify time-consuming financial procedures while lowering total costs on both sides of the transaction. These 8 Fintech trends are projected to be among the most influential in an industry that shows no signs of slowing down.

Fintech will continue to improve the accuracy and efficiency of financial services while providing easy access to them. Given the significant expansion of the fintech business, the worldwide fintech market is predicted to reach almost $324 billion by 2026, rising at a CAGR of around 23.41 percent from 2021 to 2026.

As a result, advancement in the fintech industry will occur concurrently with the development of embedded infrastructure. Furthermore, the acquisition of breakthrough artificial intelligence and machine learning algorithms is causing fintech advancement.

Fintech evolution comes from firms’ efforts to combine these elements with building a stronger foundation. This more extensive basis opens up financial access to a new generation of consumers while propelling rapid innovative tech.

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ISSUES AFFECTING SUSTAINABLE FINANCE IN 2022

If, as they say, past is prologue, then boards of directors in the United States should follow closely lessons learned by their European and British counterparts when it comes to the potential role sustainable finance plays in relation to financing the long-term strategic objectives of U.S. companies across all sectors of the economy.

Companies and investors alike are demanding sustainable investment opportunities in the form of financial and consumer products, and companies are facing increased pressure to factor in sustainability in terms of long-term growth strategies. In addition, all stakeholders continue to demand access to comparable and reliable metrics in order to evaluate the extent to which a particular investment or product is, in fact, sustainable. Indeed, the foregoing is driving rulemaking initiatives by various federal and state regulatory authorities, including the U.S. Securities and Exchange Commission (SEC). All of these factors deserve the attention by boards of directors.

In the last few years, regulators in the European Commission (EC or the “Commission”) have written and implemented a broad array of new obligations, particularly with regard to financial products and climate disclosures, to address the evolving importance of environmental, social and governance (ESG) considerations across all aspects of European economic activity. For instance, the Sustainable Finance Disclosure Regulation (SFDR) adopted by the Commission requires fund managers to disclose how they integrate sustainability risk in their investment decision-making processes, as well as certain pre-contractual disclosure requirements covering a specific fund or product. The SFDR is intended to enhance transparency and comparability of sustainability information with the financial markets by standardizing disclosures in order to prevent “greenwashing.” Relatedly, the Taxonomy Regulation sets out a clear framework to assess which activities and investments are environmentally sustainable. The Taxonomy Regulation requires additional disclosures with regard to whether a fund or product is “light green” or “dark green.” These new regulations have required fund managers to evaluate fund and product development policies and procedures to ensure that relevant and reliable information can be captured and disclosed in accordance with the new requirements. In light of these new requirements, boards of directors and relevant board committees are needing to reassess risk assessment methodologies and financial disclosure systems to more closely track the intersection of sustainable product offerings to ensure compliance with these new requirements.

Across the channel, regulators in the United Kingdom have undertaken their own rule-making initiatives on these matters, now that the U.K. is no longer a member of the European Union. For instance, the U.K.’s Financial Conduct Authority (FCA) has issued rules focused on enhancing transparency on climate-related risks and to align the disclosure requirements with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). The proposed new disclosure requirements for investment managers were published at the same time as the proposal to extend certain climate-related disclosure requirements to issuers of standard listed equity shares (excluding shell companies and investment entities). Relatedly, as we have previously discussed, in November 2021, the FCA moved forward with its plan to make the U.K. the world’s “first net zero-aligned financial centre” by publishing Primary Market Bulletin 36.

In the United States, stakeholders are waiting for the SEC to publish updated disclosure requirements relative to ESG considerations, including what are expected to be enhanced disclosure obligations relative to risks posed by climate change. These new disclosure obligations are expected to be consistent with public statements by SEC Chair Gary Gensler and other SEC commissioners with respect to seeking to ensure that public companies are collecting and disclosing credible, comparable data and metrics relative to ESG principles and investment goals. In addition, the markets continue to witness the evolution of, and demand for, financial products and commercial transactions that are underpinned by ESG principles and demand for sustainable investment opportunities continues to rise dramatically. For example, commercial banks have begun to offer sustainability-linked lending products, including incentives to meeting certain targets. While incentives have thus far been relatively modest, incentives to meeting sustainability-linked targets may increase as the market continues to evolve. In addition to a robust marketplace, many companies are finding when they enter into certain ESG transactions that they’re able to achieve cost-savings or profitable transactions in addition to achieving their ESG goals. Whether it is energy savings or purchasing carbon or renewable energy offsets, many such ESG transactions present a win-win scenario where a company can achieve its ESG goals while also generating revenue (or savings) for more ESG initiatives or a return on their ESG investment.

On that basis, the question is not whether companies and their boards of directors need to be prepared to address these matters; it is only a question of how quickly and thoughtfully can they do so. We believe boards of directors in the United States should be working now with senior management and outside advisors in order to continue addressing these issues. Smart boards of directors should be working with management and advisors to ensure that existing financial disclosure processes and procedures will be ready to integrate enhanced disclosure obligations into their public reporting. This work should include evaluating the collection of, and controls around, relevant data and metrics that will likely be included in disclosures going forward. Likewise, boards of directors—both as a whole and through board committees—should ensure that they are conversant with enterprise commitments to ESG principles and how a company is performing relative to those commitments. Relatedly, directors should continue to be mindful of how they communicate with shareholders, particularly relative to being held to account for how a company integrates sustainability and ESG considerations into its long-term strategic growth and operations. Finally, boards of directors should confer with legal and compliance personnel (as well as advisors) to ensure that a company is prepared to defend itself against evolving litigation strategies that intend to drive companies toward a more fulsome embrace of sustainable growth strategies. Taken together, boards of directors that proactively address these issues are more likely to realize significant returns when it comes to pursuing sustainable financing and opportunities for growth.

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ALLIANZ FINANCIAL RESULTS 2021

Allianz Group is one of the world’s leading insurers and asset managers. We offer our customers in more than 70 countries a wide range of personal and corporate insurance services, ranging from property, life, and health insurance to assistance services to credit insurance and global business insurance.

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DECIDE YOUR OWN PATH IN FINANCE

Are you interested in a career in finance but don’t know where to begin? Earn a degree in financial management and acquire business acumen from LSBF’s award-winning tutors. Transferable across sectors, learn how studying financial management can create many exciting career opportunities for you in 2022. Find out more about the Financial Management BSc (Hons) through the London School of Business and Finance and ULAW.

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