We should not be too disparaging about this as it took decades to standardise financial reporting standards globally. We are on that pathway now and it is accelerating faster than anticipated. We could see meaningful improvement on the horizon. When we look at issuer commitments, the accounta- bility and delivery against the short, medium and long-term targets will be key. Gopinathan: We don’t need more information; we need relevant and succinct information. When it comes to carbon reporting, Scope 1, 2 and 3 disclosures should be mandatory. It would make it easier for asset owners and asset managers to use and contextualize the information to their portfolios and net zero journeys. Gourlay: It is difficult. The regulation is European and the UK will adopt it, but Indonesia is not in Europe and is responsible for most of China’s carbon footprint. There is no way of meas- uring that, so Scope 2 and 3 become grey areas. I do not know how to look at it from a global perspective. Gopinathan: In developed markets, with Scope 1 and 2 being mandatory, there are no excuses, but there is a big question mark over Scope 3. That should be resolved as research is hap- pening around how it should be accounted for.
Back to the point about our smaller peers. They may have a lack of resources, but they can still hold asset managers to account, on net zero, for example. Trustees do not need to be bogged down with knowing where to start with net zero. They should look at their asset allocation, their sector allocation and the countries they are allocated to? This is a great starting point. Then industry collaborations can help. You can have additional agreements which talk about what you want your asset manag- ers to do, which they are probably doing already. You could have a rating system for asset managers, but that introduces the principal agent problem.
There is a lack of contextualisation of the sustainability themes, such as net zero, to an individual’s pension liabilities, which is unique to every scheme. Each pension scheme has a set of unique considerations depending on whether you are open or closed, DC or DB and what the members want. Contextualis- ing that is the scheme’s fiduciary duty. No one else can do that for you.
It comes down to the industry collaborations and the team within pension funds. If you don’t have a team, make your asset managers do it.
As asset owners we own a slice of the world that our members will retire in, so we have a responsibility to be effective owners to create a better future for
our members. Chandra Gopinathan, Railpen
Feb 2022 portfolio institutional roundtable: Sustainable investing
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