Strategies for investors, asset owners, and other stakeholders for ensuring ESG reporting is done effectively and in a compliant manner is an ongoing concern in the fund management space.
At a recent Clear Path Analysis event, “ESG Investment Leader 2022,” a panel discussion with representatives from Clarity AI, Foresters, Candriam, and KAS Bank covered the topic of how to find commonality in ESG data reporting. The market leaders gave their views on accountability in the chain and why it matters.
Patricia Sharman, Trustee, KAS Bank UK Pension Scheme, said it’s a complicated juggling act with opportunities for more efficiency.
“Part of my role as a trustee is to monitor our asset managers as to whether they are managing both the risks and the opportunities within ESG,” she said. “I start with needing quality, consistent, and independent data that allows me to do this. This will then allow me to have a conversation with the asset manager in an informed manner.”
“My scheme is not captured by the climate risk governance regulations, but I have a policy within my statement of investment principles as to how I view ESG risks and manage them,”
Sharman explained that her organisation is a defined contribution-based trust scheme that has little in-house resource, which means they need to think creatively about reporting.
Currently, the UK Pensions Regulator stipulates that, following the UK Department of Work and Pensions, providers must carry out climate related governance and reporting activities “as far as they are able”, depending on resources.
“My scheme is not captured by the climate risk governance regulations, but I am captured and obliged to have a policy within my statement of investment principles as to how I view ESG risks and how I manage them,” said Sharman. “I also have to produce an implementation statement to show how those principles have been implemented.”
Efficient reporting methods
Ways to execute this process without eating into the company’s resources required learning on the go, Sharman said. “We decided to use a provider that could offer the scheme independent reporting. One of our principles was that we wanted our managers to comply with the United Nations Principles for Responsible Investment (UNPRI) because we were only invested in pooled funds, we decided that we would screen the assets of the pooled funds against the UNPRI compact principles and check to see if there are any breaches,” she said. “Secondly, we look at controversial sectors and how exposed we are to them within the portfolios such as tobacco, oil and gas, and weapons.”
“If there is what seems to me to be a high exposure in a particular sector with a higher carbon footprint, I can ask the asset manager what they are doing in their portfolio.”
On top of this, Sharman said, they also have a carbon report that tells the organisation the carbon footprint of the portfolios, the sectors, and companies that they are investing in as well as the carbon intensity. This action can be done by using extensive data, such as collecting it directly from each business within individual funds or using third party data.
“This gives us a good base to have a conversation with the asset managers,” she said. “Do I need to be an expert? No, as I can use the reports and the data that I have to discuss a sector. If there is what seems to me to be a high exposure in a particular sector with a higher carbon footprint, I can ask the asset manager what they are doing in their portfolio.”
She added that firms may also have a company that has breached two or three UNPRI principles that they work with, and this set-up means they can ask the asset manager how they are engaging with that company on the firm’s behalf, how did they vote, and whether she can see their voting reports.
“I can have a conversation and from this, I can take comfort, or not, on whether the asset managers are managing those risks and opportunities on our behalf,” she said.
This panel discussion featured in the Environmental, Social, Governance Investing Europe 2022 report. To read the interview in full and the rest of the report, click here.
Fund Operator - news round-up 2/12/22
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