Feature


Regulators are increasingly targeting asset owners in a bid to raise corporate transparency standards, but how effective are pension schemes at collecting non-financial data from their portfolio companies? Mark Dunne reports.


Being a responsible investor is not easy. Announcing a policy of excluding excessive greenhouse gas emitters, companies that needlessly waste water or have children working in their supply chain is as easy as uploading a statement to a website. However, proving that your capital is being invested within the boundaries of such a policy is a lot harder. With corporate strategies evolving from pleasing shareholders to also keeping employees, suppliers and communities happy, demand for non-financial data is rising. Yet there are only a few regulations that force corporates to release such information, but could attitudes towards ESG-related disclosures be hardening? For instance, some investors did not see last year’s scandal coming at fashion house Boohoo and were happy to hold the stock. But an investigation by the Sunday Times uncovered severe health and safety failings in the factories making clothes for the retailer while workers were being paid below the living wage. When the scandal broke, investors lost money. To avoid a repeat, regulators are increasingly making pension schemes responsible for ensuring that the corporates they invest in are acting responsibly by demanding greater non-financial disclosures.


“The whole thrust of the regulations around sustainability and cli- mate centres on transparency and disclosure,” says Tim Manuel, head of responsible investment in the UK for Aon. “That is one of the fundamental pillars of almost every piece of legislation coming out at the moment.


“The changing tactics of regulators has been to target asset owners rather than companies. It is imposing that requirement on the people at the top of the decision-making pyramid. “Ultimately, for pension schemes to disclose they need data from the companies they invest in,” he adds. “Currently, the level of dis- closure from companies is inadequate.” Greenhouse gas emissions is the only factor that is mandatory to report on. It is also easy to calculate, making Scope 1 (emissions a company generates) and Scope 2 (emissions from energy bought by a company) more easily measurable and definable. Scope 3 (emissions from sources not owned or controlled by the company) is more difficult to assess and so only a small number of compa- nies attempt to. “Even then you find a range of approaches and methodologies among such a small sample, so trying to aggregate in a sensible way is a challenge if you are trying to look at something from a portfolio perspective,” Manuel says. “Greenhouse gas emissions are probably the best piece in terms of disclosure, but there are so many other dimensions of sustainabil- ity that investors want to know about in terms of the companies they put their money into,” he adds. This includes waste management, where, Manuel says, details on recycling are “sparsely” reported. How much of the world’s scarce resources are used by companies is another area of interest as is


March 2021 portfolio institutional roundtable: Responsible investing 23


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