Disclosure and Reporting 

Global Investor held their inaugural ESG Roundtable in June. It was moderated by Roy Zimmerhansl who led an engaging discussion with the diverse panel on ESG integration in portfolios to regulation to practical implications and much more. 

A portion of the 2023 ESG Roundtable is available in the video above. See below for a transcript of the highlights. 

Roy Zimmerhansl (RZ): So now really, the next topic that I want to move to is disclosure reporting. We’ve talked a lot about the different practices and policies and the implementation of all of this, but, this is all about an end objective and that is making sure that people understand what’s going on, that there’s disclosure there.

I’m interested on thoughts here. What are the boundaries now for reporting and how can disclosure reporting, transparency, how can those things as far as securities lending go, have an impact on ESG? Maybe Harpreet you can lead off on that?

Harpreet Bains (HB): a timely topic given the recent feedback provided to the European Commission from major European businesses on their ability to produce high quality disclosures using the new EU green taxonomy, it was quoted as an ‘almost impossible task, unclear definitions, and divergent interpretations,’ all of the things that we touched on earlier in this conversation, alongside urging the EU Commission to delay the implementation.

So, in my view there are clearly calls for policymakers here to set out requirements that are clearer in definition, relevant and avoiding jurisdictional fragmentation as much as possible. Otherwise, the fear is that ’what is produced will fail’ to achieve the desired outcome –which is ultimately to inform investors so that they can channel money into sustainable projects and initiatives.

If that information isn’t comparable or it isn’t consistent, then ’it will have fallen short of this goal. The other challenge that needs greater attention is data management. Not just the data around ESG ratings, we’ve talked about that quite a bit already, but the front to back data management process to ensure clients are extracting the maximum value from their data.

JPMorgan Securities Services has recently rolled out Sustainable Investment Data Solutions through its Fusion platform, providing capabilities across data normalisation, hierarchy management, screening and metrics calculation, in a bid to help institutional investors tackle the key challenges that can get in the way of sustainable investing.

If we don’t want regulators getting involved with fines or further headlines around greenwashing, firms are going to have to really think about global, robust, scalable data solutions to be able to effectively comply with their disclosure obligations and meet regulatory expectations.

Donia Rouigueb: Just to add - reporting for reporting is not efficient. The regulators, and we’ve seen it throughout the past decade, want more transparency and they are right to ask for that, but then you need to actually use the reporting.

Think about SFTR. It’s not focused on ESG per se, it’s about bringing transparency. Who actually looks at a SFTR reporting? There are more than 150 fields. It’s very data heavy, complicatedto produce and at the end of the day, we send it to a trade repositary. I agree - we need to bring real transparency and not just produce reporting for reporting’s sake.

RZ: Great examples there of data. SFTR: I think they said there’s fields there, we’ll make everyone report them and we’ll figure it out later. That lack of an end objective and gathering the data is a kind of reporting for reporting. When it comes to various national competent authorities - and I know in my own experiences with them, there’s some regulators that have a better understanding of this business and some less so. Is it the same kind of challenge on an investing perspective in terms of reporting and data gathering and information?

Jane Wadia: We have to comply and produce the various regulatory reports, so SFDR often does get talked about, ESG or sustainable investing. Of those four letters, it’s the D, the disclosure: it was its original intention to provide disclosure to clients. It was very much a reporting regulation more than anything else, actually.

We have to cope with being able to produce all of these, it is quite detailed and so it is helping to provide a bit of that commonality because at least it’s a common template. Then you do get into the challenges of even if it’s a common template or a number of criteria you hit, you have to provide it is subject to interpretation, and depending on the data provider you may choose, the definitions may be different.

As asset management we will also want to be giving our opinion on how we think we should deliver a certain metric.

So, it is quite intense work at the moment for sure. I think the biggest thing that we can do to try and help on that, outside of regulation more and more requests from our clients to b reporting on the ESG, sustainability, climate metrics or position of our portfolios is to do that in the most transparent way possible.

RZ: Okay, so that’s that. What I want to do now is just move to closing comments for everyone. So Donia, maybe you can start.

DR: I think that it’s about building an ESG policy view and find a way to have it concretely implemented in your securities lending program. As Harpreet said earlier, it’s about first of all, what an end-investor wants to do. Service providers like us are continuously developing powerful tools and solutions but the investors can also turn to associations such as ISLA who can help them define a successful securities lending program that suits their investment strategy.

HB: I’m going to finish by reiterating that as an agent lender, we’re confident we can support our clients with flexible solutions to help align their lending parameters with their ESG preferences. This can however impact your revenue performance, therefore it’s important to remain thoughtful with your approach and about striking the right balance between fiduciary duties to earn revenue for underlying investors and their ESG goals. This involves integrating both aspects into their decision making.

Our goal is to collaborate with all of our clients, help implement their requirements, and ultimately enable continuation of lending without clients having to undermine their ESG strategies.

JW: On that note, I’ll finish a little bit where I started as well: what’s key for me is that we view this holistically and take a bit of a 360 view as an asset manager. We spent a lot of time, as I’ve shared a little bit today, focusing on how we want to invest, what we want to exclude, where do we want to engage and so forth.

It’s also taking it that step further to how are we engaging with our service providers on securities lending when we’re doing it, for example. Everyone has a part to play both in terms of the products and services that they are offering regardless of where they sit but also their own business within the finance world.

RZ: Thanks very much. Appreciate that. I’d love to carry on with this because I’ve learned a lot so thank you for your perspective and thank you to Global Investor for hosting this. Thank you.