Call for experts to create German government funded Robo-Advisor for ESG investment products

Software will screen every European retail fund and help pension funds with mandates, makers say.

The German Government is funding the development of a ‘Robo-Advisor’ to help European pension funds, banks and retail investors identify suitable ESG investment products.
The government, in partnership with other funders, has provided €1m to climate think tank 2° Investing Initiative to drive the project, which it is hoped will help bring the sustainability retail market to scale.
Software is being developed that assesses the non-financial characteristics – initially focused on the climate profile – of every retail fund in Europe. From a climate perspective, it will benchmark the capital expenditure of firms against the climate scenarios of the International Energy Agency to assess alignment with a 2°C pathway. The result allows a judgment on the climate alignment of different funds. Beyond this, other ESG criteria and sustainable finance labels will be incorporated in the platform.
A ‘beta’ prototype of a website is slated for autumn where individuals can answer a series of questions on topics such as nuclear power, gender and other non-financial priorities. It screens the results against its database of fund profiles and provides a list of suitable options, which customers can then take to their banks or investment advisors, rather than relying on in-house advice.
“We’re not trying to ‘rate’ funds through the software,” explained Jakob Thoma, Director and Co-Founder of 2° Investing Initiative, adding: “We want to be like a Skyscanner for retail investment.” Skyscanner is a popular website that aggregates flight information from numerous airlines and holiday companies globally, to enable potential customers to search for the most appropriate option available across the market within a few minutes.The same software will also be able to be used by pension funds and banks themselves, 2° Investing Initiative told RI. The recent proposals from the High Level Expert Group on Sustainable Finance, which have been more-or-less transposed into the European Commission’s recent Action Plan on Financing Sustainable Growth, call for changes to rules for both sectors.
As part of updates to investor duties, European pension funds are expected to come under regulatory pressure to survey their beneficiaries to establish their environmental and social preferences, and invest accordingly. 2° Investing Initiative expects the new software to enable pension funds to complete these surveys more easily and directly integrate their beneficiaries profile into investment mandates.
Based on HLEG’s recommendations, the EU is also mulling changes to MIFID II, to force banks and insurance providers to ask potential customers for their sustainability preferences when deciding the most appropriate products to offer. The software will also be able to be used by banking staff to make these assessments without requiring formal training.
The software will use 2° Investing Initiative’s climate-related asset level data as its basis, but the NGO told RI it was issuing “an open call to any other experts that want to get involved” – particularly those with ratings and labels or data on other environmental and social aspects.
“We’re open to working with partners to provide their expertise,” explained Thoma. “We want leaders in different fields to come together to contribute to this project.