The Principles for Responsible Investment, the United Nations-supported body, has highlighted the need for better environmental, social and governance data, especially through convergence of reporting standards.
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Martin Skancke, PRI chair and Fiona Reynolds, PRI chief executive, said in the latest annual report that the organisation has been focussing on action seven, “Drive meaningful data throughout markets", as it works on its 10-year blueprint for boosting responsible investment.
“Reliable, timely information is needed for beneficiaries to understand and influence their investments, for asset owners to monitor their managers and for investment managers to accurately price assets and assess risk,” said the report. “We have been considering what makes data “meaningful”, how we can work towards a system of global, comparable and integrated corporate sustainability data and how to standardise investment manager reporting to asset owners.”
The PRI continued that one of the most prominent results from its consultation with asset owners last year for the body to drive better ESG data, including through convergence of reporting standards.
“Sustainability reporting is a very crowded field, but we feel that over the past year we are starting to make progress in what will be a long process,” added Skancke and Reynolds.
As a result the PRI has set up a corporate reporting reference group and is working with six other groups to provide an investor perspective into the Corporate Reporting Dialogue, which is convened by the International Integrated Reporting Council to promote greater consistency between corporate reporting frameworks, standards and related requirements.
The PRI has also been consulting with its signatories on a review of the reporting framework, the first review since the framework launched in 2012. There was a more than 20% rise in signatory numbers in 2018/19, the largest increase since 2010/11. The report said this included 69 new asset owner signatories, with growth particularly strong in the UK, US, the Netherlands and across Southern Europe .
Asset owners and investment managers also increasingly need to demonstrate the impact of their investment decisions and the PRI has been involved in the Impact Management Project, a forum of more than 2,000 organisations aiming to build global consensus on how to measure, compare, and report ESG risks and positive impacts.
The UN sustainable development goals provide a globally agreed framework for considering real-world impacts.
“While the majority of our work across ESG incorporation, active ownership and a sustainable financial system flows through to impact these issues, there has also been demand from signatories for the PRI to provide support on what the SDGs as an explicit framework mean for them,” added the PRI. “One part of our work to do this, following a successful trial in Brazil this year, will be a series of SDG investment forums, bringing together the private and public sector to better understand the investment opportunities that the SDGs present, and the wider developmental role investors can play by being a part of them.”
Market participants are also trying to improve ESG data. Last month hedge fund Man Group launched Man Group ESG Analytics, a proprietary, dashboard-style tool enabling the firm’s investment teams to monitor non-financial risks and analyse ESG factors across single issuers, portfolios and indices, which was developed internally.
Rob Furdak, co-chief investment officer of Man Numeric, said in a statement: “One of the main challenges that both quantitative and discretionary managers face when incorporating responsible investment into their investment processes is that ESG data is messy and subjective. This requires a different approach to understanding the variables than with traditional factors.”
Waqas Samad, LSEG
FTSE Russell, the London Stock Exchange Group’s index, data and analytics provider, also last month launched the first government bond index to adjust index weights based on each country’s preparedness and resilience to climate change risk.
Waqas Samad, group director of information services, LSEG said in a statement: “The launch of this index will allow the market, for the first time, to access a quantitative climate risk assessments for sovereign debt. Investors can now incorporate climate change risk considerations into their fixed income portfolios, and this could also inform their engagement with sovereigns.”
Stock exchanges
The PRI said it continues to venues on how they can enhance corporate transparency on ESG issues through the sustainable stock exchanges initiative.
“Of the SSE’s 90 partner exchanges, 43 now provide formal guidance to issuers on reporting ESG information, representing over 35,000 listed companies,” said the report.
In contrast when the SSE launched in 2015, just 13 stock exchanges provided ESG guidance. ESG information is also increasingly being incorporated into listing rules and 17 stock exchanges mow have mandatory ESG reporting requirements on four continents, with the majority in Asia.
In April this year the World Federation of Exchanges, the global industry group for exchanges and clearing houses, published its fifth annual sustainability survey for the 2018 calendar year. For the first time, the survey mapped exchange activities to the WFE’s sustainability principles, which were published in October last year.
The survey said 90% of exchanges have some form of ESG initiative, an increase on 88% from 2017. Nearly three quarters of exchanges also had UN SDG-specific initiatives, with education and information programmes for listed companies on the SDGs being the most common.
Nandini Sukumar, WFE
However the WFE noted that there is still no consistent global standard for ESG reporting and investor demand for ESG disclosure is limited in many markets.
Nandini Sukumar, chief executive of the WFE said in a statement: “It has been five years since we conducted our first annual Sustainability Survey and we are delighted to report growing engagement with this topic among our membership. This is evident from the increase in the number of exchanges participating in ESG initiatives and in the growth in sustainable finance related product offerings.”
