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how well employees are treated. “If you scour a company’s sustainability report you might find a mention of some of these factors, but it is a manual job to get this data, so it is hard to compare and contrast within a portfolio,” he adds.


Wish list


There are factors relevant to almost all sectors, such as climate change risk, workforce diversity and sound governance. But with ESG being such a broad church, the importance of individual met- rics varies from industry to industry. In mining, for example, water consumption, energy usage, health and safety and local community interaction are key concerns. In financial services, data security is paramount, as is making sure that people are not mis-sold products. “There is no one-size-fits-all approach to ESG,” says Gabriel Wil- son-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. “Even in mature areas, such as emissions, if you look at the data, we do not have reported num- bers for a large percentage of companies,” Wilson-Otto says. “For a lot of companies, where the data is available there is still an esti- mate of its performance, it is not an actual reported number.” Fred Isleib, director of ESG research and integration at Manulife 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 interested in providing infor- mation that could create a competitive disadvantage for them.” Remuneration is one area that could cause a standoff between cor- porates 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 businesses, making comparisons difficult.


One of the reasons why Isleib wants greater openness on corpo- rates’ social aspects, such as diversity, is that it is a potential signi- fier 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 success 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


24 March 2021 portfolio institutional roundtable: Responsible investing


When I talk to companies, I want to make sure they are fishing from the whole pond, not just part of it.


Fred Isleib, Manulife Investment Management


in a company’s financial accounts. They have a standardised for- mat 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 standards setters insisting on it or through a requirement for a public listing. “Some jurisdictions are looking at how that can be done,” he adds. Areas that remain challenging for Wilson-Otto involve supply chains. “There are issues where quantitative data on performance is not available,” he says. “We find this with supply chains and some of the scandals globally highlight how difficult it is getting pure transparency on company supply chains.”


Changing behaviours But for some, regulation is not a silver bullet when it comes to improving disclosure standards. “It 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 available informa- tion which could mean that company is seen as being progressive.”


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