The biggest asset management companies in the world are stepping up their response to environment, social and governance issues. Some are going so far as to warn companies that if they fail to take ESG issues seriously, and do not hit targets to prove their commitment, they risk losing investment.
While not all fund managers are likely to be so bold in holding board members to account, most are now taking ESG very seriously.
In many ways the Covid-19 pandemic has magnified the scrutiny of ESG as the expectations that businesses should take a strong social stance as well as protect their employees and supply chain have grown.
Add to this the spotlight on COP26 – the UN’s climate change conference that takes place in Glasgow later this year – along with the push for greater environmental sustainability, and the result is clear; fund managers need to step up their commitment to ESG and its measurement.
For those that get this right, the rewards are high. A robust and authentic ESG strategy that transcends through products, investment processes and data-driven reporting is easy for clients to understand and can appeal to new customers who attribute a high value to ESG. A proper strategy shows how ESG fits within the business and reaffirms the what, why and how.
The way this message is shared with the audience is critical, but reporting is not an easy landscape to navigate. From the Task Force on Climate-related Financial Disclosures, which looks at climate-related risks and opportunities, to the Global Reporting Initiative, which examines the impact of companies on the environment and society, there is a raft of frameworks to consider.
What is more, there is not the set guidance or standardised reporting you would find in more established financial reports.
For fund managers looking to elevate their ESG reporting, there are three key principles to consider: authenticity, substance, and defendable data.
Reporting with an authentic voice
If done right, ESG reporting reaffirms your key ESG messages, educates investors about your investment processes, and showcases how it fits within your operations. Furthermore, it can provide clarity as to how a particular product has or has not achieved its stated sustainability and ESG objectives. Authenticity is the key to making your ESG reporting believable.
The journey to building an authentic voice is twofold. First of all, reporting needs to be seen as an opportunity and not an endgame. ESG reporting that is linked to strategic aims is a chance to show investors who the company is and its ethos in a hotly contested space. Those that see it as more than simply a burden or exercise to complete are the ones that will make the most of the opportunities that ESG can bring.
Start by telling a story that begins at the highest level in the business. Everything should hang off a consistent and clear ESG strategy that comes straight from senior decision-makers. From here you can incorporate ESG into your investment ethos, your investment approach and then on to the specific investment objectives of the products.