ESG Feature
It is easy for a company to say that they have improved if they have not given you any data to evaluate that improvement.
Gabriel Wilson-Otto, BNP Paribas Asset Management
One of the reasons why Isleib wants greater openness on cor- porates’ social aspects, such as diversity, is that it is a potential signifier of future performance. “When I talk to companies, I want to make sure they are fishing from the whole pond, not just part of it,” he adds. “Ultimately, that will drive better suc- cess in the long term for that organisation.” For Manuel, the answer is to make ESG reporting an annual occurrence. “What you want is for this information to be included in a company’s financial accounts. They have a stand- ardised format and methodologies for creating the output and they are also audited, whereas sustainability reports are not.” To get to that stage it needs to be mandated, Manuel says. This could be through legislation, through the accounting stand- ards setters insisting on it or through a requirement for listing on stock exchanges. “Some geographies and jurisdictions are looking at how that can be done,” he adds. Areas that remain challenging for Wilson-Otto involves supply chains. “There are issues where quantitative data on perfor- mance is not available,” he says. “We find this with supply chains and some of the scandals globally highlight how diffi- cult it is getting pure transparency on company supply chains.”
Wilson-Otto, head of stewardship, Asia Pacific, at BNP Paribas Asset Management. “If we look across different sectors, you have to be specific to get the required impact.” He praises the disclosure standards in the UK and Europe but adds that improvements are needed across the board. “Even in mature areas, such as emissions, if you look at the data, we do not have reported actual numbers for a large percentage of companies,” Wilson-Otto says. “For a lot of companies, where the data is available there is still an estimate of its performance, it is not an actual reported number.” Fred Isleib, director of ESG research and integration at Manu- life Investment Management, would like companies to be more open about the social aspects of their operations, but he understands why some are reluctant to do so. “They do not want to put a target on their back,” he says. “They are not inter- ested in providing information that could create a competitive disadvantage for them.” Remuneration is one area that could cause a standoff between corporates and their investors. Disclosing a pay gap among senior staff, for instance, could be used to lure key personnel away from the business, but, on the other hand, investors need to know what is happening internally at the companies they are considering investing in. “We need to understand how they are developing, retaining and recruiting key personnel,” Isleib adds.
UK companies with more than 250 staff members are mandated to report any gender pay gap, but it is a different proposition when investing in international companies, mak- ing comparisons difficult.
Changing behaviours So, what is needed to improve disclosure standards? “Regula- tion is not the answer,” Isleib says. “What has to happen is that companies need to recognise the value in providing disclosure. “Instead of looking at it from a negative standpoint, look at it from a positive,” he adds. “If you are trying to recruit younger people into your organisation, they can see the publicly availa- ble information which could mean that company is seen as being progressive.” For Manuel, it is interesting to see the behavioural changes that have resulted from existing mandatory disclosure require- ments. Pension funds have to put their policies on their web- site and they have to disclose in an annual statement how they have delivered on those policies. “They are not just saying what they are going to do, they have to follow up and demonstrate what they have done,” Manuel says.
“What I have seen when working with trustees, is that it chang- es the way they approach these issues knowing what they are saying what they will do and what they do will be played out in the public arena. They can be judged more easily, they can be compared with their peers more easily, they can be called out more easily or they could be celebrated more easily. “For me, the transparency and disclosure piece is the critical element for the whole drive for pushing the sustainability agenda,” Manuel says. Data on a company’s operations is crucial in ESG, where engagement and improving a company from within is a big
Issue 98 | November 2020 | portfolio institutional | 31
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