ESG Investing  

Elevating ESG: Now is the time for fund managers to step up their reporting

  • Describe the importance of strong ESG reporting.
  • Understand how ESG reporting will help advisers and clients make the right decisions.
  • Explain what steps need to be taken by fund managers in improving their ESG reporting.

Make it part of a continuous cycle of setting goals, reporting against them, evaluating and reassessing the original aims to move them forward. Making it a one-off instinctively feels inauthentic.

The second element is bringing reporting in-line with the company's values. If you have a report that looks and feels different to what the business is and how it usually operates it will lack authenticity and be out of touch with the brand.

Substance over style

Beyond being authentic, ESG reporting must put substance firmly over style. 

As Mark Carney, the former governor of the Bank of England, recently said: "What gets measured, gets managed", and it is true that only by having clear goals and consistent measurement can there be accurate reporting.

Whether year-on-year or across the fund range, a consistent approach to evaluation makes it easier for clients to understand and interpret the findings. 

What is useful here is thinking about and applying reporting styles with the same level of depth and breadth across funds and products. There will be nuances across asset classes and for specific product types, but making it easy for clients to see the ESG performance across different funds in a comparable way is important to helping them ‘read’ the story.

One way to help is to keep reporting simple, clear and concise. Funds should tie ESG reporting and the metrics measured directly to the investment objectives and approach. What did the fund say it would do? Did it do it? How did it do it? Part of this means thinking about the audience reading the report and figuring out what those people need to know. 

Lastly, fund managers must make sure outcomes are clearly stated in reporting. It is not just the process but the impact that investors want to understand. Adopting a consistent reporting framework either in-house or externally is critical here.

Defendable data

Yet businesses are under pressure to do more than just set lofty ESG targets and demonstrate action. Claims by charitable organisations and others that net-zero targets are often ‘greenwashing’ suggest that the scrutiny of ESG credentials is going mainstream. 

Part of the solution here will be having robust data to hand.

When it comes to data there are three questions to ask. Do clients understand why a stock or issuer has a particular ESG rating? Is the data used in ESG metrics and reporting clear and traceable? Is the methodology in which it was calculated clearly articulated and explainable? If the answers are no, the fund is susceptible to client, stakeholder, and regulator challenges.

Third-party ESG data providers are an important part of the solution for many looking to paint a picture of the ESG performance, but they are not a magic bullet. The methodology applied by third parties can be what’s known as ‘black box’, meaning it’s difficult to interpret and interrogate. This means it’s hard to understand and report to investors.